Republic of the Philippines Petron is a domestic corporation engaged in the oil business.

It owns
SUPREME COURT several bulk plants in the country for receiving, storing and distributing
Manila its petroleum products.

SECOND DIVISION In 1968, Romualdo D. Gindang Contractor, which was owned and
operated by Romualdo D. Gindang (Romualdo), started recruiting
G.R. No. 177592 June 9, 2014 laborers for fielding to Petron’s Mandaue Bulk Plant. When Romualdo
died in1989, his son Romeo D. Gindang (Romeo), through Romeo D.
AVELINO S. ALILIN, TEODORO CALESA, CHARLIE HINDANG, Gindang Services(RDG), took over the business and continued to
EUTIQUIO GINDANG, ALLAN SUNGAHID, MAXIMO LEE, JOSE G. provide manpower services to Petron. Petitioners were among those
MORA TO, REX GABILAN, AND EUGEMA L. LAURENTE, Petitioners, recruited by Romualdo D. Gindang Contractor and RDG to work in the
vs. premises of the said bulk plant, with the corresponding dates of hiring
PETRON CORPORATION, Respondent. and work duties, to wit:

DECISION Employees Date of Duties

Hiring
DEL CASTILLO, J.:
Eutiquio 1968 utility/tanker receiver/barge
Gindang loader/warehouseman/mixer
A contractor is presumed to be a labor-only contractor, unless it proves
that it has the substantial capital, investment, tools and the like. Eugema L. June 1979 telephone operator/order taker
However, where the principal is the one claiming that the contractor is Laurente
a legitimate contractor, the burden of proving the supposed status of
the contractor rests on the principal.1 Teodoro August 1, utility/tanker receiver/barge
Calesa 1981 loader/sounder/gauger
This Petition for Review on Certiorari2 assails the Decision3 dated May Rex Gabilan July 1, 1987 warehouseman/forklift driver/tanker
10, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 01291 which receiver/barge loader
granted the Petition for Certiorari filed therewith, reversed and set aside
the February 18, 2005 Decision4 and August 24, 2005 Resolution5 of Charlie T. September utility/tanker receiver/barge
the National Labor Relations Commission (NLRC) in NLRC Case No. Hindang 18, 1990 loader/sounder/gauger
V-000481-2003 and dismissed the Complaint for illegal dismissal filed Allan P. September filler/sealer/painter/tanker
by petitioners Avelino Alilin (Alilin), Teodoro Calesa (Calesa), Charlie Sungahid 18, 1990 receiver/utility
Hindang (Hindang), Eutiquio Gindang (Gindang), Allan Sungahid
(Sungahid), Maximo Lee (Lee), Jose G. Morato (Morato), Rex Gabilan Maximo S. Lee September gasul filler/painter/utility
(Gabilan) and Eugema L. Laurente (Laurente) against respondent 18, 1990
Petron Corporation (Petron). Also assailed in this Petition is the CA
Avelino S. July 16, 1992 carpenter/driver
Resolution6 dated March 30, 2007 which denied petitioners’ Motion for
Alilin
Reconsideration7 and Supplemental Motion for Reconsideration.8
Jose Gerry M. March 16, cylinder checker/tanker receiver/grass
Factual Antecedents Morato 1993 cutter/janitor/utility
On June 1, 2000, Petron and RDG entered into a Contract for
Services9 for the period from June 1, 2000 to May 31, 2002, whereby
RDG undertook to provide Petron with janitorial, maintenance, tanker
receiving, packaging and other utility services in its Mandaue Bulk
Plant. This contract was extended on July 31, 2002 and further
extended until September 30, 2002. Upon expiration thereof, no further
renewal of the service contract was done.
Proceedings before the Labor Arbiter
Alleging that they were barred fromcontinuing their services on October
16, 2002, petitioners Alilin, Calesa, Hindang, Gindang, Sungahid, Lee,
Morato and Gabilan filed a Complaint10 for illegal dismissal,
underpayment of wages, damages and attorney’s fees against Petron
and RDG on November 12, 2002. Petitioner Laurente filed another
Complaint11 for illegal dismissal, underpayment of wages, non-payment
of overtime pay, holiday pay, premium pay for holiday, rest day, 13th
month pay, service incentive leave pay, allowances, separation pay,
retirement benefits, damages and attorney’s fees against Petron and
RDG. The said complaints were later consolidated.
Petitioners did not deny that RDG hired them and paid their salaries.
They, however, claimed that the latter is a labor-only contractor, which
merely acted as an agent of Petron, their true employer. They
asseverated that their jobs, which are directly related to Petron’s
business, entailed them to work inside the premises of Petron using the
required equipment and tools furnished by it and that they were subject
to Petron’s supervision. Claiming to be regular employees, petitioners
thus asserted that their dismissal allegedly in view of the expiration of
the service contract between Petron and RDG is illegal.
RDG corroborated petitioners’ claim that they are regular employees of
Petron. It alleged that Petron directly supervised their activities; they
performed jobs necessary and desirable to Petron’s business; Petron
provided petitioners with supplies, tools and equipment used in their
jobs; and that petitioners’ workplace since the start of their employment
was at Petron’s bulk plant in Mandaue City. RDG denied liability over
petitioners’ claim of illegal dismissal and further argued that Petron
cannot capitalize on the service contract to escape liability.
Petron, on the other hand, maintained that RDG is an independent
contractor and the real employer of the petitioners. It was RDG which
hired and selected petitioners, paid their salaries and wages, and
directly supervised their work. Attesting to these were two former
employees of RDG and Petron’s Mandaue Terminal Superintendent
whose joint affidavit12 and affidavit,13 respectively, were submitted by
Petron. Anent its allegation that RDG is an independent contractor,
Petron presented the following documents: (1) RDG’s Certificate of
Registration issued by the Department of Labor and Employment
(DOLE) on December 27, 2000;14 (2) RDG’s Certificate of Registration
of Business Name issued by the Department of Trade and Industry
(DTI) on August 18, 2000;15 (3) Contractor’s Pre-Qualification
Statement;16 (4) Conflict of Interest Statement signed by Romeo
Gindang as manager of RDG;17 (5) RDG’s Audited Financial
Statements for the years 199818 199919 and 2000;20 (6) RDG’s Mayor’s
Permit for the years 200021 and 2001;22 (7) RDG’s Certificate of
Accreditation issued by DTI in October 1991;23 (8) performance
bond24and insurance policy25 posted to insure against liabilities; (9)
Social Security System (SSS) Online Inquiry System Employee
Contributions and Employee Static Information;26 and, (10) Romeo’s
affidavit27 stating that he had paid the salaries of his employees
assigned to Petron for the period of November 4, 2001 to December
31, 2001. Petron argued that with the expiration of the service contract
it entered with RDG, petitioners’ term of employment has concomitantly
ended. And not being the employer, Petron cannot be held liable for
petitioners’ claim of illegal dismissal.
In a Decision28 dated June 12, 2003,the Labor Arbiter ruled that
petitioners are regular employees of Petron. It found that their jobs were
directly related to Petron’s business operations; they worked under the
supervision of Petron’s foreman and supervisor; and they were using
Petron’s tools and equipment in the performance of their works. The
Labor Arbiter also found that Petron merely utilized RDG in its attempt
to hide the existence of employee-employer relationship between it and
petitioners and avoid liability under labor laws. And there being no
showing that petitioners’ dismissal was for just or authorized cause, the
Labor Arbiter declared them to have been illegally dismissed. Petron
was thus held solidarily liable with Romeo for the payment of
petitioners’ separation pay (in lieu of reinstatement due to strained
relations with Petron) fixed at one month pay for every year of service
and backwages computed on the basis of the last salary rate at the time
of dismissal. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered
ordering the respondents Petron Corporation and Romeo Gindang to The NLRC also denied Petron’s Motion for Reconsideration in its
pay the complainants as follows: Resolution32 of August 24, 2005.

1. Teodoro Calesa P 136,890.00 Proceedings before the Court of Appeals

2. Eutiquio Gindang P 202,800.00 Petron filed a Petition for Certiorari with prayer for the issuance of a
3. Charlie T. Gindang P 91,260.00 temporary restraining order or writ of injunction before the CA. The said
court resolved to grant the injunction.33 Hence, a Writ of Preliminary
4. Allan P. Sungahid P 91,260.00 Injunction34 to restrain the implementation of the February 18, 2005
Decision and August 24, 2005 Resolution of the NLRC was issued on
5. Jose Gerry Morato P 76,050.00
March 3, 2006.
6. Avelino A. Alilin P 95,680.00
In a Decision35 dated May 10, 2006, the CA found no employer-
7. Rex S. Gabilan P 106,470.00 employee relationship between the parties. According to it, the records
8. Maximo S. Lee P 91,260.00 of the case do not show that petitioners were directly hired, selected or
employed by Petron; that their wages and other wage related benefits
9. Eugema Minao Laurente P 150,800.00 were paid by the said company; and that Petron controlled the manner
Total award ₱1,042,470.00 by which they carried out their tasks. On the other hand, RDG was
shown to be responsible for paying petitioners’ wages. In fact, SSS
records show that RDG is their employer and actually the one remitting
The other claims are dismissed for lack of merit. their contributions thereto. Also, two former employees of RDG who
were likewise assigned in the Mandaue Bulk Plant confirmed by way of
SO ORDERED.29 a joint affidavit that it was Romeo and his brother Alejandre Gindang
who supervised their work, not Petron’s foreman or supervisor. This
Proceedings before the National Labor Relations Commission was even corroborated by the Terminal Superintendent of the Mandaue
Bulk Plant.
Petron continued to insist that there is no employer-employee
relationship between it and petitioners. The NLRC, however, was not The CA also found RDG to be an independent labor contractor with
convinced. In its Decision30 of February 18, 2005, the NLRC ruled that sufficient capitalization and investment as shown by its financial
petitioners are Petron’s regular employees because they are statement for year-end 2000. In addition, the works for which RDG was
performing job assignments which are germane to its main business. contracted to provide were menial which were neither directly related
Thus: nor sensitive and critical to Petron’s principal business. The CA
disposed of the case as follows:
WHEREFORE, premises considered, the Decision of the Labor Arbiter
is hereby affirmed. It is understood that the grant of backwages shall WHEREFORE, the Petition is GRANTED. The February 18, 2005
be until finality of the Decision. Decision and the August 24, 2005 Resolution of the Fourth Division of
the National Labor Relations Commission in NLRC Case No. V-
The appeal of respondent Petron Corporation is hereby DISMISSED 000481-2003, entitled "Teodoro Calesa et al. vs. Petron Corporation
for lack of merit. and R.D. Gindang Services", having been rendered with grave abuse
of discretion amounting to excess of jurisdiction, are hereby
SO ORDERED.31 REVERSED and SET ASIDE and a NEW ONE is entered DISMISSING
private respondents’ complaint against petitioner. It is so ordered.36
Petitioners filed a Motion for Reconsideration37 insisting that Petron
illegally dismissed them; that RDG is a labor-only contractor; and that
they performed jobs which are sensitive to Petron’s business
operations. To support these, they attached to their Supplemental
Motion for Reconsideration38 Affidavits39 of former employees of Petron
attesting to the fact that their jobs were critical to Petron’s business
operations and that they were carried out under the control of a Petron
employee.
Petitioners’ motions were, however, denied by the CA in a
Resolution40 dated March 30, 2007.
Hence, this Petition.
Issue
The primary issue to be resolved in this case is whether RDG is a
legitimate job contractor. Upon such finding hinges the determination
of whether an employer-employee relationship exists between the
parties as to make Petron liable for petitioners’ dismissal.
Our Ruling
The Petition is impressed with merit. The conflicting findings of the
Labor Arbiter and the NLRC on one hand, and of the CA on the other,
constrains the Court to review the factual issues involved in this case.
As a general rule, the Court does not review errors that raise factual
questions.41 Nonetheless, while it is true that the determination of
whether an employer-employee relationship existed between the
parties basically involves a question of fact, the conflicting findings of
the Labor Arbiter and the NLRC on one hand, and of the CA on the
other, constrains the Court to review and reevaluate such factual
findings.42
Labor-only contracting, distinguished
from permissible job contracting.
The prevailing rule on labor-only contracting at the time Petron and
RDG entered into the Contract for Services in June 2000 is DOLE
Department Order No. 10, series of 1997,43 the pertinent provision of
which reads:
Section 4. x x x
xxxx
(f) "Labor-only contracting" prohibited under this Rule is an
arrangement where the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service for a
principal and the following elements are present:
(i) The contractor or subcontractor does not have substantial capital or
investment to actually perform the job, work or service under its own
account and responsibility; and
(ii) The employees recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly related to the
main business of the principal.
xxxx
Section 6. Permissible contracting or subcontracting. - Subject to the
conditions set forth in Section 3 (d) and (e) and Section 5 hereof, the
principal may engage the services of a contractor or subcontractor for
the performance of any of the following:
(a) Works or services temporarily or occasionally needed to meet
abnormal increase in the demand of products or services, provided that
the normal production capacity or regular workforce of the principal
cannot reasonably cope with such demands;
(b) Works or services temporarily or occasionally needed by the
principal for undertakings requiring expert or highly technical personnel
to improve the management or operations of an enterprise;
(c) Services temporarily needed for the introduction or promotion of
new products, only for the duration of the introductory or promotional
period;
(d) Works or services not directly related or not integral to the main
business or operation of the principal, including casual work, janitorial,
security, landscaping, and messengerial services, and work not related
to manufacturing processes in manufacturing establishments;
(e) Services involving the public display of manufacturers’ products
which do not involve the act of selling or issuance of receipts or
invoices;
(f) Specialized works involving the use of some particular, unusual or
peculiar skills, expertise, tools or equipment the performance of which
is beyond the competence of the regular workforce or production
capacity of the principal; and
(g) Unless a reliever system is in place among the regular workforce,
substitute services for absent regular employees, provided that the
period of service shall be coextensive with the period of absence and
the same is made clear to the substitute employee at the time of
engagement. The phrase "absent regular employees" includes those
who are serving suspensions or other disciplinary measures not
amounting to termination of employment meted out by the principal, but
excludes those on strike where all the formal requisites for the legality
of the strike have been prima facie complied with based on the records
filed with the National Conciliation and Mediation Board.
"Permissible job contracting or subcontracting refers to an arrangement
whereby a principal agrees to farm out with a contractor or
subcontractor the performance of a specific job, work, or service within
a definite or predetermined period, regardless of whether such job,
work or, service is to be performed or completed within or outside the
premises of the principal. Under this arrangement, the following
conditions must be met: (a) the contractor carries on a distinct and
independent business and undertakes the contract work on his account
under his own responsibility according to his own manner and method,
free from the control and direction of his employer or principal in all
matters connected with the performance of his work except as to the
results thereof; (b) the contractor has substantial capital or investment;
and (c) the agreement between the principal and contractor or
subcontractor assures the contractual employees’ entitlement to all
labor and occupational safety and health standards, free exercise of
the right to self-organization, security of tenure, and social welfare
benefits."44 Labor-only contracting, on the other hand, is a prohibited
act, defined as "supplying workers to an employer who does not have
substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited
and placed by such person are performing activities which are directly
related to the principal business of such employer."45 "[I]n
distinguishing between prohibited labor-only contracting and
permissible job contracting, the totality of the facts and the surrounding
circumstances of the case shall be considered."46 Generally, the
contractor is presumed to be a labor-only contractor, unless such
contractor overcomes the burden of proving that it has the substantial
capital, investment, tools and the like. However, where the principal is
the one claiming that the contractor is a legitimate contractor, as in the
present case, said principal has the burden of proving that supposed
status.47 It is thus incumbent upon Petron, and not upon petitioners as
Petron insists,48 to prove that RDG is an independent contractor.
Petron failed to discharge the burden of
proving that RDG is a legitimate
contractor. Hence, the presumption that
RDG is a labor-only contractor stands.
Here, the audited financial statements and other financial documents
of RDG for the years 1999 to 2001 establish that it does have sufficient
working capital to meet the requirements of its service contract. In fact,
the financial evaluation conducted by Petron of RDG’s financial
statements for years 1998-2000 showed RDG to have a maximum
financial capability of Php4.807 Million as of December 1998,49 and
Php1.611 Million as of December 2000.50 Petron was able to establish
RDG’s sufficient capitalization when it entered into the service contract
in 2000. The Court stresses though that this determination of RDG’s
status as an independent contractor is only with respect to its financial
capability for the period covered by the financial and other documents
presented. In other words, the evidence adduced merely proves that
RDG was financially qualified as a legitimate contractor but only with
respect to its last service contract with Petron in the year 2000.
As may be recalled, petitioners have rendered work for Petron for a
long period of time even before the service contract was executed in
2000. The respective dates on which petitioners claim to have started
working for Petron, as well as the fact that they have rendered
continuous service to it until October 16, 2002, when they were
prevented from entering the premises of Petron’s Mandaue Bulk Plant,
were not at all disputed by Petron. In fact, Petron even recognized that
some of the petitioners were initially fielded by Romualdo Gindang, the
father of Romeo, through RDG’s precursor, Romualdo D.Gindang
Contractor, while the others were provided by Romeo himself when he
took over the business of his father in 1989.1âwphi1 Hence, while
Petron was able to establish that RDG was financially capable as a
legitimate contractor at the time of the execution of the service contract
in 2000, it nevertheless failed to establish the financial capability of
RDG at the time when petitioners actually started to work for Petron in
1968, 1979, 1981, 1987, 1990,1992 and 1993.
Sections 8 and 9,Rule VIII, Book III51 of the implementing rules of the
Labor Code, in force since 1976 and prior to DOLE Department Order
No. 10, series of 1997,52 provide that for job contracting to be
permissible, one of the conditions that has to be met is that the
contractor must have substantial capital or investment. Petron having
failed to show that this condition was met by RDG, it can be concluded,
on this score alone, that RDG is a mere labor-only contractor.
Otherwise stated, the presumption that RDG is a labor-only contractor
stands due to the failure of Petron to discharge the burden of proving
the contrary.
The Court also finds, as will be discussed below, that the works
performed by petitioners were directly related to Petron’s business,
another factor which negates Petron’s claim that RDG is an
independent contractor.
Petron’s power of control over
petitioners exists in this case.
"[A] finding that a contractor is a ‘labor-only’ contractor is equivalent to
declaring that there is an employer-employee relationship between the
principal and the employees of the supposed contractor."53 In this case,
the employer employee relationship between Petron and petitioners
becomes all the more apparent due to the presence of the power of
control on the part of the former over the latter.
It was held in Orozco v. The Fifth Division of the Hon. Court of
Appeals54 that:
This Court has constantly adhered to the "four-fold test" to determine
whether there exists an employer-employee relationship between the
parties. The four elements of an employment relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages;
(c) the power of dismissal; and (d) the power to control the employee’s
conduct.
Of these four elements, it is the power to control which is the most
crucial and most determinative factor, so important, in fact, that, the
other elements may even be disregarded." (Emphasis supplied)
Hence, the facts that petitioners were hired by Romeo or his father and
that their salaries were paid by them do not detract from the conclusion
that there exists an employer-employee relationship between the
parties due to Petron’s power of control over the petitioners. One
manifestation of the power of control is the power to transfer employees
from one work assignment to another.55 Here, Petron could order
petitioners to do work outside of their regular "maintenance/utility" job.
Also, petitioners were required to report for work everyday at the bulk
plant, observe an 8:00 a.m. to 5:00 p.m. daily work schedule, and wear
proper uniform and safety helmets as prescribed by the safety and
security measures being implemented within the bulk plant. All these
imply control. In an industry where safety is of paramount concern,
control and supervision over sensitive operations, such as those
performed by the petitioners, are inevitable if not at all necessary.
Indeed, Petron deals with commodities that are highly volatile and
flammable which, if mishandled or not properly attended to, may cause
serious injuries and damage to property and the environment.
Naturally, supervision by Petron is essential in every aspect of its
product handling in order not to compromise the integrity, quality and
safety of the products that it distributes to the consuming public.
Petitioners already attained regular
status as employees of Petron.
Petitioners were given various work assignments such as tanker
receiving, barge loading, sounding, gauging, warehousing, mixing,
painting, carpentry, driving, gasul filling and other utility works. Petron
refers to these work assignments as menial works which could be
performed by any able-bodied individual. The Court finds, however, that
while the jobs performed by petitioners may be menial and mechanical,
they are nevertheless necessary and related to Petron’s business
operations. If not for these tasks, Petron’s products will not reach the
consumers in their proper state. Indeed, petitioners’ roles were vital
inasmuch as they involve the preparation of the products that Petron
will distribute to its consumers.

Furthermore, while it may be true that any able-bodied individual can

perform the tasks assigned to petitioners, the Court notes the
undisputed fact that for many years, it was the same able-bodied
individuals (petitioners) who performed the tasks for Petron. The
engagement of petitioners for the same works for a long period of time
is a strong indication that such works were indeed necessary to
Petron’s business. In view of these, and considering further that
petitioners’ length of service entitles them to become regular
employees under the Labor Code, petitioners are deemed by law to Republic of the Philippines
have already attained the status as Petron’s regular employees. As Supreme Court
such, Petron could not terminate their services on the pretext that the Manila
service contract it entered with RDG has already lapsed. For one, and
as previously discussed, such regular status had already attached to THIRD DIVISION
them even before the execution of the service contract in 2000. For
another, the same does not constitute a just or authorized cause for a POLYFOAM-RGC INTERNATIONAL, G.R. No. 172349
valid dismissal of regular employees. CORPORATION and PRECILLA A. GRAMAJE,
Petitioners, Present:
In sum, the Court finds that RDG is a labor-only contractor. As such, it
is considered merely as an agent of Petron. Consequently, the PERALTA, J., Acting Cha
employer-employee relationship which the Court finds to exist in this ABAD,
case is between petitioners as employees and Petron as their - versus - VILLARAMA, JR.,**
employer. Petron therefore, being the principal employer and RDG, MENDOZA, and
being the labor-only contractor, are solidarily liable for petitioners' illegal PERLAS-BERNABE, JJ.
dismissal and monetary claims.56
EDGARDO CONCEPCION, Promulgated:
WHEREFORE, the Petition is GRANTED. The May 10, 2006 Decision Respondent.
and March 30, 2007 Resolution of the Court of Appeals in CA-G.R. SP June 13, 2012
No. 01291 are REVERSED and SET ASIDE. The February 18, 2005 x-----------------------------------------------------------------------------------------x
Decision and August 24, 2005 Resolution of the National Labor
Relations Commission in NLRC Case No. V-000481-2003 are hereby
REINSTATED and AFFIRMED. DECISION

SO ORDERED.
PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of

Court filed by petitioners Polyfoam-RGC International Corporation
(Polyfoam) and Precilla A. Gramaje (Gramaje) against respondent
Edgardo Concepcion assailing the Court of Appeals (CA)
Decision[1] dated December 19, 2005 and Resolution[2] dated April 25,
2006 in CA-G.R. SP No. 83696. The assailed decision reversed the
National Labor Relations Commissions (NLRCs) Decision[3] dated May
7, 2003 in NLRC NCR CA No. 030622-02, while the assailed resolution
denied petitioners and respondents motions for reconsideration.
The factual and procedural antecedents follow:
On February 8, 2000, respondent filed a Complaint[4] for illegal
dismissal, non-payment of wages, premium pay for rest day, separation
pay, service incentive leave pay, 13th month pay, damages, and
attorneys fees against Polyfoam and Ms. Natividad Cheng
(Cheng). Respondent alleged that he was hired by Polyfoam as an all-
around factory worker and served as such for almost six
years.[5] On January 14, 2000, he allegedly discovered that his time
card was not in the rack and was later informed by the security guard
that he could no longer punch his time card.[6] When he protested to his
supervisor, the latter allegedly told him that the management decided
to dismiss him due to an infraction of a company rule. Cheng, the
companys manager, also refused to face him. Respondents counsel
later wrote a letter[7] to Polyfoams manager requesting that respondent
be re-admitted to work, but the request remained unheeded prompting
the latter to file the complaint for illegal dismissal.[8]
On April 28, 2000, Gramaje filed a Motion for Intervention[9] claiming to
be the real employer of respondent. On the other hand, Polyfoam and
Cheng filed a Motion to Dismiss[10] on the grounds that the NLRC has
no jurisdiction over the case, because of the absence of employer-
employee relationship between Polyfoam and respondent and that the
money claims had already prescribed.[11]
On May 24, 2000, Labor Arbiter Adolfo Babiano issued an
Order[12] granting Gramajes motion for intervention, it appearing that
she is an indispensable party and denying Polyfoam and Chengs
motion to dismiss as the lack of employer-employee relationship is only
a matter of defense.
In their Position Paper,[13] Polyfoam and Cheng insisted that the NLRC
has no jurisdiction over the case, because respondent was not their
employee. They likewise contended that respondents money claims
had already prescribed. Finally, they fault respondent for including
Cheng as a party-defendant, considering that she is not even a director
of the company.[14]
In her Position Paper,[15] Gramaje claimed that P.A. Gramaje
Employment Services (PAGES) is a legitimate job contractor who
provided some manpower needs of Polyfoam. It was alleged that
respondent was hired as packer and assigned to Polyfoam, charged
with packing the latters finished foam products. She argued, however,
that respondent was not dismissed from employment, rather, he simply
stopped reporting for work.[16]
On December 14, 2001, Labor Arbiter (LA) Marita V. Padolina rendered
a Decision finding respondent to have been illegally dismissed from
employment and holding Polyfoam and Gramaje/PAGES solidarily
liable for respondents money claims. The dispositive portion of the
Decision is quoted below for easy reference:
WHEREFORE, premises considered, judgment is hereby
rendered finding complainant to have been illegally dismissed
and respondents Polyfoam-RGC International Corporation,
P.A. Gramaje Employment Services/Precilla A. Gramaje are
ordered to pay complainant jointly and severally the following:
1). Separation Pay - P 52,000.00
2). Backwages - 157,041.38
3). 13th Month Pay - 17,407.00
4). Moral Damages - 5,000.00
5). Exemplary Damages - 5,000.00
6). Attorneys fees - ___ 23,644.83
P 260,093.21
All other claims are denied for lack of factual basis.
SO ORDERED.[17]
The Labor Arbiter found respondent to have been illegally dismissed
from employment and thus is entitled to full backwages inclusive of
allowances. In lieu of reinstatement, the LA awarded respondent
separation pay of one month salary for every year of service from April
21, 1994 until promulgation of the decision.[18] The LA further held that
petitioners are solidarily liable to respondent for the latters money
claims, considering that Gramaje (the contractor) was not enrolled as
private employment agency in the registry of the Regional Office of the
Department of Labor and Employment (DOLE) and considering further
that respondent performed a job directly related to the main business
of Polyfoam.[19]
On appeal by petitioners, the NLRC modified the LA decision by
exonerating Polyfoam from liability for respondents claim for separation
pay and deleting the awards of backwages, 13th month pay, damages,
and attorneys fees. The dispositive portion of the decision reads:
WHEREFORE, the appealed decision is modified in that the
complaint against respondent-appellant Polyfoam-RGC
International Corp. is dismissed. However, respondent-
intervenor-appellant P.A. Gramaje Employment Services is
hereby ordered to pay complainant separation pay of one (1)
month salary for every year of service reckoned from April 21,
1996 up to the rendition of this decision, or the sum of P58,5000
(sic).
The awards of backwages, 13th month pay, damages, and
attorneys fees are set aside.
SO ORDERED.[20]
The NLRC found Gramaje to be an independent contractor who
contracted the packaging aspect of the finished foam products of
Polyfoam. Pursuant to said contract, Gramajes employees, including
respondent, were assigned to Polyfoam but remained under the control
and supervision of Gramaje. It likewise concluded that Gramaje had its
own office equipment, tools, and substantial capital and, in fact,
supplied the plastic containers and carton boxes used by her
employees in performing their duties.[21] The Commission also found
sufficient evidence to prove that Gramaje paid respondents wages and
benefits and reported the latter to the Social Security System (SSS) as
a covered employee.[22] As to whether there was illegal dismissal, the
NLRC answered in the negative, since respondent was not notified that
he had been dismissed nor was he prevented from returning to his
work. The NLRC found Gramaje liable for claiming that respondent
abandoned his job. Reinstatement, however, could not be decreed
because of the strained relations between the parties; hence, the award
of separation pay. But the NLRC refused to award backwages.[23]The
award of moral and exemplary damages was likewise deleted for lack
of evidence.[24]
Aggrieved, respondent elevated the case to the CA in a special civil
action for certiorari under Rule 65 of the Rules of Court. On December
19, 2005, the appellate court rendered the assailed decision,[25] the
dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, the petition
is GRANTED. The assailed Decision of the National Labor
Relations Commission, First Division dated May 7,
2003 is REVERSED and the decision of Labor Arbiter Marita
Padolina, dated December 14, 2001, is hereby REINSTATED.
SO ORDERED.[26]
The CA agreed with the LAs conclusion that Gramaje is not a legitimate
job contractor but only a labor-only contractor because of the following:
(1) Gramaje failed to present its Audited Financial Statement that would
have shown its financial standing and ownership of equipment,
machineries, and tools necessary to run her own business;[27] (2)
Gramaje failed to present a single copy of the purported contract with
Polyfoam as to the packaging aspect of the latters business;[28] (3)
Gramajes licenses supposedly issued by the DOLE appeared to be
spurious.[29] (4) Gramaje was not registered with DOLE as a private
recruitment agency;[30] and (5) Gramaje presented only one (1) SSS
Quarterly Collection List whose authenticity is doubtful.[31] The CA
noted that petitioners are represented by only one law firm though they
made it appear that they were represented by different
lawyers.[32] These circumstances, says the CA, give rise to the
suspicion that the creation or establishment of Gramaje was just a
scheme designed to evade the obligation inherent in an employer-
employee relationship.[33] Thus, respondent was indeed Polyfoams
employee. This relationship was specifically shown by Polyfoams
exercise of supervision over the work of respondent;[34] the furnishing
of a copy of Polyfoams Mga Alituntunin at Karampatang Parusa to
serve as respondents guide in the performance of his duty;[35] the length
of time that respondent had performed activities necessary for
Polyfoams business;[36] and Polyfoams act of directly firing
respondent.[37] Finally, the appellate court affirmed the LAs findings of
illegal dismissal as respondent was dismissed from the service without
cause and due process.[38] Consequently, separation pay in lieu of
reinstatement was awarded. The CA quoted with approval the LA
conclusions on the award of respondents other money claims.[39]
Petitioners now come before the Court in this petition for review
on certiorari based on the following assigned errors:
I.
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE
PETITION FOR CERTIORARI FILED BY HEREIN
RESPONDENT CONSIDERING THE FACT THAT IT WAS
CLEARLY FILED OUT OF TIME, HAVING BEEN FILED ON
THE 77TH DAY FROM RECEIPT BY HEREIN RESPONDENT
OF THE RESOLUTION OF THE NLRC DENYING HIS
MOTION FOR RECONSIDERATION.
II.
THE COURT OF APPEALS ERRED IN NOT UPHOLDING THE
DECISION OF THE NLRC AND ITS FINDINGS THAT A)
RESPONDENT CONCEPCION IS AN EMPLOYEE OF P.A.
GRAMAJE EMPLOYMENT SERVICES; B) P.A. GRAMAJE IS
A LEGITIMATE JOB CONTRACTOR; C)
RESPONDENT CONCEPCION WAS NOT DISMISSED FROM
HIS JOB, CONSIDERING THAT THESE FINDINGS ARE
FULLY SUPPORTED BY EVIDENCE.
III.
THE COURT OF APPEALS ERRED IN REINSTATING THE
DECISION OF THE LABOR ARBITER MARITA PADOLINA
AWARDING RESPONDENT CONCEPCION BACKWAGES,
MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS
FEES.[40]
There are three issues for resolution, to wit: (1) whether or not Gramaje
is an independent job contractor; (2) whether or not an employer-
employee relationship exists between Polyfoam and respondent; and
(3) whether or not respondent was illegally dismissed from
employment.
Gramaje is a Labor-Only
Contractor
Article 106 of the Labor Code explains the relations which may arise
between an employer, a contractor, and the contractors employees,
thus:
ART. 106. Contractor or subcontracting. − Whenever an
employer enters into a contract with another person for the
performance of the formers work, the employees of the
contractor and of the latters subcontractor, if any, shall be paid
in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the
wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor
or subcontractor to such employees to the extent of the work
performed under the contract, in the same manner and extent
that he is liable to employees directly employed by him.
The Secretary of Labor and Employment may, by appropriate
regulations, restrict or prohibit the contracting out of labor to
protect the rights of workers established under the Code. In so
prohibiting or restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine
who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or
circumvention of any provision of this Code.
There is labor-only contracting where the person supplying
workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed
by such person are performing activities which are directly
related to the principal business of such employer. In such
cases, the person or intermediary shall be considered merely
as an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were
directly employed by him.
In Sasan, Sr. v. National Labor Relations Commission
4th Division,[41] the Court distinguished permissible job contracting or
subcontracting from labor-only contracting, to wit:
Permissible job contracting or subcontracting refers to an
arrangement whereby a principal agrees to put out or farm out
to a contractor or subcontractor the performance or completion
of a specific job, work or service within a definite or
predetermined period, regardless of whether such job, work or
service is to be performed or completed within or outside the
premises of the principal. A person is considered engaged in
legitimate job contracting or subcontracting if the following
conditions concur:
(a) The contractor or subcontractor carries on a
distinct and independent business and undertakes to
perform the job, work or service on its own account and
under its own responsibility according to its own manner
and method, and free from the control and direction of
the principal in all matters connected with the
performance of the work except as to the results thereof;
(b) The contractor or subcontractor has substantial
capital or investment; and
(c) The agreement between the principal and contractor
or subcontractor assures the contractual employees
entitlement to all labor and occupational safety and
health standards, free exercise of the right to self-
organization, security of tenure, and social and welfare
benefits.
In contrast, labor-only contracting, a prohibited act, is an
arrangement where the contractor or subcontractor merely
recruits, supplies or places workers to perform a job, work or
service for a principal. In labor-only contracting, the following
elements are present:
(a) The contractor or subcontractor does not have
substantial capital or investment to actually perform the
job, work or service under its own account and
responsibility; and
(b) The employees recruited, supplied or placed by such
contractor or subcontractor are performing activities
which are directly related to the main business of the
principal.[42]
The test of independent contractorship is whether one claiming to be
an independent contractor has contracted to do the work according to
his own methods and without being subject to the control of the
employer, except only as to the results of the work.[43] In San Miguel
Corporation v. Semillano,[44] the Court laid down the criteria in
determining the existence of an independent and permissible
contractor relationship, to wit:
x x x [W]hether or not the contractor is carrying on an
independent business; the nature and extent of the work; the
skill required; the term and duration of the relationship; the right
to assign the performance of a specified piece of work; the
control and supervision of the work to another; the employers
power with respect to the hiring, firing and payment of the
contractors workers; the control of the premises; the duty to
supply the premises, tools, appliances, materials, and labor;
and the mode, manner and terms of payment.[45]
Simply put, the totality of the facts and the surrounding circumstances
of the case are to be considered. Each case must be determined by its
own facts and all the features of the relationship are to be considered.[46]
Applying the foregoing tests, we agree with the CAs conclusion that
Gramaje is not an independent job contractor, but a labor-only
contractor.
First, Gramaje has no substantial capital or investment. The
presumption is that a contractor is a labor-only contractor unless he
overcomes the burden of proving that it has substantial capital,
investment, tools, and the like. The employee should not be expected
to prove the negative fact that the contractor does not have substantial
capital, investment and tools to engage in job-contracting.[47]
Gramaje claimed that it has substantial capital of its own as well as
investment in its office, equipment and tools. She pointed out that she
furnished the plastic containers and carton boxes used in carrying out
the function of packing the mattresses of Polyfoam. She added that she
had placed in Polyfoams workplace ten (10) sealing machines, twenty
(20) hand trucks, and two (2) forklifts to enable respondent and the
other employees of Gramaje assigned at Polyfoam to perform their
job.Finally, she explained that she had her own office with her own
staff.[48] However, aside from her own bare statement, neither Gramaje
nor Polyfoam presented evidence showing Gramajes ownership of the
equipment and machineries used in the performance of the alleged
contracted job. Considering that these machineries are found in
Polyfoams premises, there can be no other logical conclusion but that
the tools and equipment utilized by Gramaje and her employees are
owned by Polyfoam.Neither did Polyfoam nor Gramaje show that the
latter had clients other than the former. Since petitioners failed to
adduce evidence that Gramaje had any substantial capital, investment
or assets to perform the work contracted for, the presumption that
Gramaje is a labor-only contractor stands.[49]
Second, Gramaje did not carry on an independent business or
undertake the performance of its service contract according to its own
manner and method, free from the control and supervision of its
principal, Polyfoam, its apparent role having been merely to recruit
persons to work for Polyfoam.[50] It is undisputed that respondent had
performed his task of packing Polyfoams foam products in Polyfoams
premises. As to the recruitment of respondent, petitioners were able to
establish only that respondents application was referred to Gramaje,
but that is all. Prior to his termination, respondent had been performing
the same job in Polyfoams business for almost six (6) years. He was
even furnished a copy of Polyfoams Mga Alituntunin at Karampatang
Parusa,[51] which embodied Polyfoams rules on attendance, the
manner of performing the employees duties, ethical standards,
cleanliness, health, safety, peace and order. These rules carried with
them the corresponding penalties in case of violation.
While it is true that petitioners submitted the Affidavit of Polyfoams
supervisor Victor Abadia, claiming that the latter did not exercise
supervision over respondent because the latter was not Polyfoams but
Gramajes employee, said Affidavit is insufficient to prove such
claim. Petitioners should have presented the person who they claim to
have exercised supervision over respondent and their alleged other
employees assigned to Polyfoam. It was never established that
Gramaje took entire charge, control and supervision of the work and
service agreed upon. And as aptly observed by the CA, it is likewise
highly unusual and suspect as to the absence of a written contract
specifying the performance of a specified service, the nature and extent
of the service or work to be done and the term and duration of the
relationship.[52]
An Employer-Employee Relationship Exists
Between Respondent and Polyfoam
A finding that a contractor is a labor-only contractor, as opposed to
permissible job contracting, is equivalent to declaring that there is an
employer-employee relationship between the principal and the
employees of the supposed contractor, and the labor-only contractor is
considered as a mere agent of the principal, the real employer.[53]In this
case, Polyfoam is the principal employer and Gramaje is the labor-only
contractor. Polyfoam and Gramaje are, therefore, solidarily liable for
the rightful claims of respondent.[54]
Respondent was Illegally Dismissed
From Employment
Respondent stated that on January 14, 2000, his time card was
suddenly taken off the rack. His supervisor later informed him that
Polyfoams management decided to dismiss him due to infraction of
company rule. In short, respondent insisted that he was dismissed from
employment without just or lawful cause and without due
process. Polyfoam did not offer any explanation of such dismissal. It,
instead, explained that respondents real employer is
Gramaje. Gramaje, on the other hand, denied the claim of illegal
dismissal. She shifted the blame on respondent claiming that the latter
in fact abandoned his work.
The LA gave credence to respondents narration of the circumstances
of the case. Said conclusion was affirmed by the CA. We find no reason
to depart from such findings.
Abandonment cannot be inferred from the actuations of respondent.
When he discovered that his time card was off the rack, he immediately
inquired from his supervisor. He later sought the assistance of his
counsel, who wrote a letter addressed to Polyfoam requesting that he
be re-admitted to work. When said request was not acted upon, he filed
the instant illegal dismissal case. These circumstances clearly negate
the intention to abandon his work.
Petitioners failed to show any valid or authorized cause under the Labor
Code which allowed it to terminate the services of respondent. Neither
was it shown that respondent was given ample opportunity to contest
the legality of his dismissal. No notice of termination was given to him.
Clearly, respondent was not afforded due process. Having failed to
establish compliance with the requirements of termination of
employment under the Labor Code, the dismissal of respondent was
tainted with illegality.[55] Consequently, respondent is entitled to
reinstatement without loss of seniority rights, and other privileges and
to his full backwages inclusive of allowances and to his other benefits
or their monetary equivalent computed from the time his compensation
was withheld up to the time of his actual reinstatement. However, if
reinstatement is no longer feasible as in this case, separation pay
equivalent to one month salary for every year of service shall be
awarded as an alternative.[56] Thus, the CA is correct in affirming the
LAs award of separation pay with full backwages and other monetary
benefits.
WHEREFORE, premises considered, the petition is
hereby DENIED. The Court of Appeals Decision dated December 19,
2005 and Resolution dated April 25, 2006, in CA-G.R. SP No. 83696,
are AFFIRMED.
SO ORDERED.
G.R. No. 211015, June 20, 2016
CAGAYAN ELECTRIC POWER & LIGHT COMPANY, INC.
(CEPALCO) AND CEPALCO ENERGY SERVICES CORPORATION
(CESCO), FORMERLY CEPALCO ENERGY SERVICES & TRADING
CORPORATION (CESTCO), Petitioners, v. CEPALCO EMPLOYEE'S
LABOR UNION-ASSOCIATED LABOR UNIONS-TRADE UNION
CONGRESS OF THE PHILIPPINES (TUCP), Respondent.
G.R. No. 213835
CAGAYAN ELECTRIC POWER & LIGHT COMPANY, INC.
(CEPALCO) AND CEPALCO ENERGY SERVICES CORPORATION
(CESCO), FORMERLY CEPALCO ENERGY SERVICES & TRADING
CORPORATION (CESTCO), Petitioners, v. CEPALCO EMPLOYEE'S
LABOR UNION-ASSOCIATED LABOR UNIONS-TRADE UNION
CONGRESS OF THE PHILIPPINES (TUCP), Respondent.
DECISION
PERLAS-BERNABE, J.:
Before the Court are petitions for review on certiorari1 which assail: (a)
in G.R. No. 211015, the Decision2 dated September 14, 2012 and the
Resolution3 dated January 15, 2014 of the Court of Appeals (CA) in CA-
G.R. SP No. 03169-MIN; and (b) in G.R. No. 213835, the
Decision4 dated November 11, 2013 and the Resolution5 dated July 17,
2014 of the CA in CA-G.R. SP No. 04296-MIN. In both cases, the CA
absolved herein petitioners Cagayan Electric Power & Light Company,
Inc. (CEPALCO) and CEPALCO Energy Services Corporation
(CESCO), formerly CEPALCO Energy Services & Trading
Corporation,6 from the charges of Unfair Labor Practice (ULP) filed by
herein respondent CEPALCO Employee's Labor Union-Associated
Labor Unions-Trade Union Congress of the Philippines (respondent),
but nonetheless, pronounced that CESCO was engaged in labor-only
contracting and that, in consequence, the latter's employees are
actually the regular employees of CEPALCO in the same manner and
extent as if they were directly employed by CEPALCO.
The Facts
Respondent is the duly certified bargaining representative of
CEPALCO's regular rank-and-file employees. On the other hand,
CEPALCO is a domestic corporation engaged in electric distribution in
Cagayan de Oro and other municipalities in Misamis Oriental; while
CESCO is a business entity engaged in trading and
services.7chanrobleslaw
On February 19, 2007, CEPALCO and CESCO (petitioners) entered
into a Contract for Meter Reading Work8 where CESCO undertook to
perform CEPALCO's meter-reading activities. As a result, several
employees and union members of CEPALCO were relieved, assigned
in floating positions, and replaced with CESCO workers,9 prompting
respondent to file a complaint10 for ULP against petitioners, docketed
as NLRC Case No. RAB-10-07-00408-2007. Respondent alleged that
when CEPALCO engaged CESCO to perform its meter-reading
activities, its intention was to evade its responsibilities under the
Collective Bargaining Agreement (CBA) and labor laws, and that it
would ultimately result in the dissipation of respondent's membership
in CEPALCO.11 Thus, respondent claimed that CEPALCO's act of
contracting out services, which used to be part of the functions of the
regular union members, is violative of Article 259 (c)12 of the Labor
Code, as amended,13 governing ULP of employers. It further averred
that for engaging in labor-only contracting, the workers placed by
CESCO must be deemed regular rank-and-file employees of
CEPALCO, and that the Contract for Meter Reading Work be declared
null and void.14chanrobleslaw
In defense,15 petitioners averred that CESCO is an independent job
contractor and that the contracting out of the meter-reading services
did not interfere with CEPALCO's regular workers' right to self-
organize, denying that none of respondent's members was put on
floating status.16 Moreover, they argued that the case is only a labor
standards issue, and that respondent is not the proper party to raise
the issue regarding the status of CESCO's employees and, hence,
cannot seek that the latter be declared as CEPALCO's regular
employees.17chanrobleslaw
18
In a Decision dated August 20, 2008, the Labor Arbiter (LA) dismissed
the complaint for lack of merit. The LA found that petitioners have
shown by substantial evidence that CESCO carries on an independent
business of contracting services, in this case for CEPALCO's meter-
reading work, and that CESCO has an authorized capital stock of
P100,000,000.00, as well as equipment and materials necessary to
carry out its business.19 As an independent contractor, CESCO is the
statutory employer of the workers it supplied to CEPALCO pursuant to
their contract.20 Thus, there is no factual basis to say that CEPALCO
committed ULP as there can be no splitting or erosion of the existing
rank-and-file bargaining unit that negates interference with the exercise
of CEPALCO workers' right to self-organize.21chanrobleslaw
On appeal22 by respondent, the National Labor Relations Commission
(NLRC), in a Decision23 dated April 30, 2009, affirmed the LA's ruling in
toto, finding that the evidence proffered by respondent proved
inadequate in establishing that the service contract amounted to the
interference of the right of the union members to self-organization and
collective bargaining.24chanrobleslaw
Respondent's motion for reconsideration25cralawred was denied in a
Resolution26 dated June 30, 2009; hence, it filed a petition
for certiorari27 before the CA, docketed as CA-G.R. SP No. 03169-MIN.
Pending resolution of CA-G.R. SP No. 03169-MIN, or on January 5,
2010, CEPALCO and CESCO entered into another Contract of
Service,28 this time for the warehousing works of CEPALCO. Alleging
that three (3) union members who were assigned at the warehouse of
the logistics department were transferred to other positions and
departments without their conformity and, eventually, were replaced by
workers recruited by CESCO, respondent filed another complaint29 for
ULP against petitioners, docketed as NLRC Case No. RAB-10-12-
00602-2009, similarly decrying that CEPALCO was engaged in labor-
only contracting and, thus, committed ULP.30chanrobleslaw
As in the first case against them, petitioners posited31 that CEPALCO
did not engage in ULP when it contracted out its warehousing
works32 and that CESCO is an independent contractor.33 They further
reiterated their argument that respondent is not the proper party to seek
any form of relief for the CESCO employees.34chanrobleslaw
In a Decision35 dated July 29, 2010, the LA dismissed the case for lack
of merit, citing its earlier decision in NLRC Case No. RAB-10-07-
00408-2007. It explained that the only difference between the previous
case and the present case was that in the former, CEPALCO
contracted out its meter-reading activities, while in the latter, it
contracted out its warehousing works. However, both cases essentially
raised the same issue between the same parties, i.e., whether or not
the contracting out of services being performed by the union members
constitute ULP.36 As such, the NLRC applied the principle of res
judicata under the rule on eonclusiveness of judgment and dismissed
the complaint for ULP.37 At any rate, it found that respondent failed to
present substantial evidence that CEPALCO's contracting out of the
warehousing works constituted ULP.38chanrobleslaw
On appeal39 by respondent, the NLRC, in a Resolution40 dated
February 21, 2011, dismissed the appeal and affirmed the LA's ruling in
toto. Respondent's motion for reconsideration41 was denied in a
Resolution42 dated April 15, 2011; hence, it elevated the matter to the
CA via petition for certiorari,43docketed as CA-G.R. SP No. 04296-MIN.
The Ruling in CA-G.R. SP No. 03169-MIN
In a Decision44 dated September 14, 2012, the CA partially granted
respondent's certiorari petition and reversed and set aside the assailed
NLRC issuances.
Preliminarily, the CA found that CESCO was engaged in labor-only
contracting in view of the following circumstances: (a) there was
absolutely no evidence to show that CESCO exercised control over its
workers, as it was CEPALCO that established the working procedure
and methods, supervised CESCO's workers, and evaluated them;45 (b)
there is no substantial evidence to show that CESCO had substantial
capitalization as it only had a paid-up capital of P51,000.00 as of May
30, 1984, and there was nothing on CESCO's list of machineries and
equipment that could have been used for the performance of the meter-
reading activities contracted out to it;46 and (c) the workers of CESCO
performed activities that are directly related to CEPALCO's main line of
business.47 Moreover, while CESCO presented a Certificate of
Registration48 with the Department of Labor and Employment, the CA
held that it was not a conclusive evidence of CESCO's status as an
independent contractor.49 Consequently, the workers hired by CESCO
pursuant to the service contract for the meter-reading activities were
declared regular employees of CEPALCO.50chanrobleslaw
However, the CA found no substantial evidence that CEPALCO was
engaged in ULP, there being no showing that when it contracted out
the meter-reading activities to CESCO, CEPALCO was motivated by ill
will, bad faith or malice, or that it was aimed at interfering with its
employees' right to self-organize.51chanrobleslaw
Petitioners' motion for reconsideration52 was denied in a
Resolution53 dated January 15, 2014; hence, the present petition
docketed as G.R. No. 211015.
The Ruling in CA-G.R. SP No. 04296-MIN
In a Decision54 dated November 11, 2013, the CA partially granted
respondent's petition, finding that CESCO was a labor-only contractor
as it had no substantial capitalization, as well as tools, equipment, and
machineries used in the work contracted out by CEPALCO.55 As such,
it stated that CESCO is merely an agent of CEPALCO, and that the
latter is still responsible to the workers recruited by CESCO in the same
manner and extent as if those workers were directly employed by
CEPALCO.56chanrobleslaw
Nonetheless, same as the ruling in CA-G.R. SP No. 03169-MIN, the
CA found that CEPALCO committed no ULP for lack of substantial
evidence to establish the same.57chanrobleslaw
Petitioners' motion for reconsideration58 was denied in a
Resolution59 dated July 17, 2014; hence, the present petition docketed
as G.R. No. 213835.
The Issues Before the Court
In both G.R. Nos. 211015 and 213835,60 petitioners lament that the CA
erred in declaring CESCO as a labor-only contractor notwithstanding
the fact that CEPALCO has already been absolved of the charges of
ULP. To this, petitioners argue that the issue of whether or not CESCO
is an independent contractor was mooted by the finality of the finding
that there was no ULP on the part of CEPALCO.61 Also, they aver that
respondent is not a party-in-interest in this issue because the
declaration of the CA t&at the employees of CESCO are considered
regular employees will not even benefit the respondent.62 If there is
anyone who stands to benefit from such rulings, they are the employees
of the CESCO who are not impleaded in these cases. In any event,
petitioners insist that CESCO is a legitimate contractor. Overall, they
prayed that the assailed CA rulings be reversed and set aside insofar
as the CA found CESCO as engaged in labor-only contracting and that
its employees are actually the regular employees of
CEPALCO.63chanrobleslaw
The Court's Ruling
The petitions are partly meritorious.
At the outset, it is well to note that the status of CESCO as a labor-only
contractor was raised in respondent's complaints before the labor
tribunals only in relation to the charges of ULP. In particular,
respondent, in its complaint in NLRC Case No. RAB-10-07-00408-
2007, mainly argued that the "[labor-only] contracting agreement
between CEPALCO and [CESCO] discriminates regular union member
employees and will ultimately result in the dissipation of its ranks in the
line maintenance and construction department."64 This is similar to the
thrust of its complaint in NLRC Case No. RAB-10-12-00602-2009,
wherein they averred that "the [labor-only] contracting arrangement
between CEPALCO and [CESCO] discriminates union members and
restrains or coerces employees in the exercise of their rights to [self-
organization] and collective bargaining[,] and amounts to union
busting."65 As the LA in the latter case aptly observed, "the essential
issue between the same parties remain[s] identical: whether the
contracting out of activities or services being performed by [u]nion
members constitute [ULP]."66chanrobleslaw
Under Article 10667 of the Labor Code, as amended, labor-only
contracting is an arrangement where the contractor, who does not have
substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, supplies workers to an
employer and the workers recruited are performing activities which are
directly related to the principal business of such employer. Section 5
of Department Order No. 18-02, Series of 2002, otherwise known
as the "Rules Implementing Articles 106 to 109 of the Labor Code,
As Amended" (DO 18-02), provides the following criteria to gauge
whether or not an arrangement constitutes labor-only contracting:
Section 5. Prohibition against labor-only contracting. Labor-only
contracting is hereby declared prohibited. For this purpose, labor-only
contracting shall refer to an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a
job, work or service for a principal, and any of the following elements
are present:
chanRoblesvirtualLawlibrary
i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or
service to be performed and the employees recruited,
supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main
business of the principal; or
ii) the contractor does not exercise the right to control over
the performance of the work of the contractual employee.
The foregoing provisions shall be without prejudice to the application of
Article 248 (C) of the Labor Code, as amended.
"Substantial capital or investment" refers to capital stocks and
subscribed capitalization in the case of corporations, tools, equipment,
implements, machineries and work premises, actually and directly used
by the contractor or subcontractor in the performance or completion of
the job, work or service contracted out.
The "right to control" shall refer to the right reserved to the person for
whom the services of the contractual workers are performed, to
determine not only the end to be achieved, but also the manner and
means to be used in reaching that end. (Emphases supplied)
Labor-only contracting is considered as a form of ULP when the same
is devised by the employer to "interfere with, restrain or coerce
employees in the exercise of their rights to self-organization."68 Article
259 of the Labor Code, as amended, which enumerates certain
prohibited activities constitutive of ULP,
provides:ChanRoblesVirtualawlibrary
Article 259. Unfair Labor Practices of Employers. - It shall be unlawful
for an employer to commit any of the following unfair labor practice:
chanRoblesvirtualLawlibrary
xxxx
(c) To contract out services or functions being performed by union
members when such will interfere with, restrain or coerce
employees in the exercise of their rights to self-organization.
x x x x (Emphasis and underscoring supplied)
The need to determine whether or not the contracting out of services
(or any particular activity or scheme devised by the employer for that
matter) was intended to defeat the workers' right to self-organization is
impelled by the underlying concept of ULP. This is stated in Article 258
of the Labor Code, as amended, to wit:ChanRoblesVirtualawlibrary
Article 258. Concept of Unfair Labor Practice and Procedure for
Prosecution Thereof. - Unfair labor practices violate the
constitutional right of workers and employees to self-
organization, are inimical to the legitimate interests of both labor and
management, including their right to bargain collectively and
otherwise deal with each other in an atmosphere of freedom and mutual
respect, disrupt industrial peace and hinder the promotion of healthy
and stable labor-management relations.
x x x x (Emphases and underscoring supplied)
Thus, in Great Pacific Employees Union v. Great Pacific Life Assurance
Corporation,69 the Court observed:ChanRoblesVirtualawlibrary
There should be no dispute that all the prohibited acts constituting
unfair labor practice in essence relate to the workers' right to self-
organization. Thus, an employer may be held liable under this
provision if his conduct affects in whatever manner the right of an
employee to self-organize.70chanroblesvirtuallawlibrary
Similarly, in Bankard, Inc. v. NLRC:71
The Court has ruled that the prohibited acts considered as ULP relate
to the workers' right to self-organization and to the observance of a
CBA. It refers to "acts that violate the workers' right to organize."
Without that element, the acts, even if unfair, are not ULP. Thus,
an employer may only be held liable for unfair labor practice if it can be
shown that his acts affect in whatever manner the right of his
employees to self-organize.72(Emphasis and underscoring supplied)
In these cases, the Court agrees with the CA that CEPALCO was
engaged in labor-only contracting as its Contract for Meter-Reading
Work dated February 19, 2007 and Contract of Service To Perform
Warehousing Works dated January 5, 2010 (subject contracts) with
CESCO fit the criteria provided for in Section 5 of DO 18-02, as above-
highlighted.
To be specific, petitioners failed to show that CESCO has substantial
capital or investment which relates to the job, work or service to be
performed. While it is true that: (a) CESCO's Amended Articles of
Incorporation73 as of November 26, 2008 shows that CESCO's
authorized capital stock is P200,000,000.00 as of September 26,
2008,74 which was increased from P100,000,000.0075 on May 30,
2007; and (b) its financial statement76 as of 2010 and 2011 shows that
its paid-up capital stock is in the sum of P81,063,000.00,77 there is no
available document to show CESCO's authorized capital stock at the
time of the contracting out of CEPALCO's meter-
reading activities to CESCO on February 19, 2007. As it is, the
increases in its authorized capital stock and paid-up capital were only
made after November 26, 2008, hence, are only relevant with regard to
the time CEPALCO contracted out its warehousing works to CESCO
on January 5, 2010. Since the amount of CESCO's authorized capital
stock at the time CEPALCO contracted out its meter-reading activities
was not shown, the Court has no means of determining whether it had
substantial capital at the time the contract therefor was entered into.
Furthermore, the list78 of CESCO's office equipment, furniture and
fixtures, and vehicles offered in evidence by petitioners does not satisfy
the requirement that they could have been used in the performance of
the specific work contracted out, i.e., meter-reading service. As the CA
aptly pointed out,79 the tools and equipment utilized by CESCO in the
meter-reading activities are owned by CEPALCO, emphasizing the fact
that CESCO has no basic equipment to carry out the service contracted
out by CEPALCO.
It is also evident that meter-reading is a job that is directly related to the
main business of CEPALCO, considering that the latter is an electric
distribution utility,80 which is necessarily tasked with the evaluation and
appraisal of meters in order to bill its clients.
More significantly, records are devoid of evidence to prove that the work
undertaken in furtherance of the meter-reading contract was made
under the sole control and supervision of CESCO. Instead, as
noted81by the CA, it was CEPALCO that established the working
procedure and methods and supervised CESCO's workers in their
tasks.
On the other hand, although it may be said that CESCO had substantial
capital when CEPALCO contracted out its warehousing works on
January 5, 2010, there is, however, lack of credible evidence to show
that CESCO had the aforesaid substantial investment in the form of
equipment, tools, implements, machineries, and work premises to
perform the warehousing activities on its own account. Similarly, the job
contracted out is directly related to CEPALCO's electric distribution
business, which involves logistics, inventories, accounting, billing
services, and other related operations. Lastly, same as above, no
evidence has been offered to establish that CESCO exercised control
with respect to the manner and methods of achieving the warehousing
works, or that it supervised the workers assigned to perform the same.
The foregoing findings notwithstanding, the Court, similar to the CA and
the labor tribunals, finds that CEPALCO's contracting arrangements
with CESCO did not amount to ULP. This is because respondent was
not able to present any evidence to show that such arrangements
violated CEPALCO's workers' right to self-organization, which, as
above-mentioned, constitutes the core of ULP. Records do not show
that this finding was further appealed by respondent. Thus, the
complaints filed by respondent should be dismissed with finality.
At this juncture, it should be made clear that the disposition of these
cases should be limited only to the foregoing declaration. Again, the
complaints filed by respondent were only for ULP. While there is
nothing infirm in passing upon the matter of labor-only contracting since
it was vigorously litigated in these proceedings, the resolution of the
same must only be read in relation to the charges of ULP. As earlier
stated, labor-only contracting was invoked by respondent as a
prohibited act under Article 259 (c) of the Labor Code, as amended. As
it turned out, however, respondent failed to relate the arrangement to
the defining element of ULP, i.e., that it violated the workers' right to
self-organization. Hence, being a preliminary matter actively argued by
respondent to prove the charges of ULP, the same was not rendered
moot and academic by the eventual dismissal of the complaints as an
issue only becomes moot and academic if it becomes a "dead" issue,
devoid of any practical value or use to be passed upon. In Pormento v.
Estrada:82
An action is considered "moot" when it no longer presents a justiciable
controversy because the issues involved have become academic or
dead or when the matter in dispute has already been resolved and
hence, one is not entitled to judicial intervention unless the issue is
likely to be raised again between the parties. There is nothing for the
court to resolve as the determination thereof has been overtaken by
subsequent events.83chanroblesvirtuallawlibrary
For another, the Court also observes that while respondent did ask for
the nullification of the subject contracts between petitioners, and even
sought that the employees provided by CESCO to CEPALCO be
declared as the latter's own employees, petitioners correctly argue that
respondent is not a real party-in-interest and hence, had no legal
standing insofar as these matters are concerned. This is because
respondent failed to demonstrate how it stands to be benefited or
injured by a judgment on the same, or that any personal or direct injury
would be sustained by it if these reliefs were not granted. In Joya v.
Presidential Commission on Good Government,84 the Court
explained:ChanRoblesVirtualawlibrary
"Legal standing" means a personal and substantial interest in the case
such that the party has sustained or will sustain direct injury as a result
of the x x x act being challenged. The term "interest" is material interest,
an interest in issue and to be affected by the decree, as distinguished
from mere interest in the question involved, or a mere incidental
interest. Moreover, the interest of the party plaintiff must be personal
and not one based on a desire to vindicate the constitutional right of
some third and unrelated party.85chanroblesvirtuallawlibrary
If at all, it would be the employees of CESCO who are entitled to seek
the foregoing reliefs since in cases of labor-only contracting, "the
person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner
and extent as if the latter were directly employed by him."86 However,
they have not been impleaded in these cases. Thus, as prayed for by
petitioners, the Court must set aside the portions of the assailed CA
Decisions declaring: (a) the workers hired by CESCO, pursuant to the
contracts subject of these cases, as regular employees of CEPALCO;
and (b) the latter responsible to said workers in the same manner and
extent as if they were directly employed by it. This pronouncement not
only squares with the rules on real party-in-interest and legal standing,
but also with the precept that no one shall be affected by any
proceeding to which he is a stranger, and that strangers to a case are
not bound by any judgment rendered by the court.87chanrobleslaw
With the principal issues already resolved, the Court sees no need to
delve into other ancillary issues that would have no effect to the
conclusion of these cases.
WHEREFORE, the petitions are PARTLY GRANTED. The portions of
the Decisions and Resolutions of the Court of Appeals (CA) in CA-G.R.
SP No. 03169-MIN and CA-G.R. SP No. 04296-MIN declaring that the
workers hired by CESCO, pursuant to the contracts subject of these
cases, are regular employees of CEPALCO, and that the latter is
responsible to said workers in the same manner and extent as if those
workers were directly employed by CEPALCO are hereby DELETED.
The rest of the CA Decisions stand.
SO ORDERED.chanRoblesvirtualLawlibrary

G.R. No. 201494, July 29, 2015
MARITES R. CUSAP, Petitioner, v. ADIDAS PHILIPPINES, INC.,
(ADIDAS), PROMOTION RESOURCES & INTER-MARKETING
EXPONENTS, INC. (PRIME) AND JC ATHLETES, INC.
(JCA), Respondents.
DECISION
BRION, J.:
We resolve petitioner Marites R. Cusap's appeal1 from the September
21, 2011 decision2 and February 20, 2012 resolution3 of the Court of
Appeals in CA-G.R. SP No. 104725.
The Antecedents
On January 21, 2003, the petitioner and 27 other employees
(complainants) filed a complaint for illegal dismissal4 against
the respondents Adidas Philippines Inc. (Adidas) and Promotion
Resources Inter-Marketing Exponents, Inc. (PRIME). The
complainants later amended the complaint to include JC Athletes, Inc.
(JCA), as a respondent.5 They prayed for reinstatement with back
wages, separation pay (should reinstatement be no longer feasible),
13th month pay, service incentive leave pay, and damages.
Through their "Magkasanib na Sinumpaang Salaysay,"6 the
complainants alleged that they were regular employees of Adidas after
having worked as promo girls and stockmen at the company's various
rented outlets for years, ranging from one year to seven years; the
earliest employed (June 1, 1995) was Nova Toque while the latest was
Aquilino Banaag (September 21, 2000). The petitioner was hired on
October 28, 1995.7ChanRoblesVirtualawlibrary
The record shows that Adidas is engaged in the manufacture and
marketing of different lines of shoes and other sporting goods and
apparel in the Philippines.8 After its contract with its former distributor,
World Sports, Inc. (WOSI) allegedly expired, it contracted9 JCA to be
its exclusive distributor nationwide for one year or from January 1, 2002
to December 31, 2002. In turn, JCA entered into a Promotional
Contract10 with PRIME to meet the promotional requirements in the
distribution of Adidas products. PRIME supposedly assigned the
complainants to JCA for the purpose.
The complainants claimed that they were dismissed from employment
on December 9, 2002, when the service contract between PRIME and
JCA was terminated. This notwithstanding, they argued that Adidas
was their real employer, not PRIME which, they believed, was merely
a recruitment agency supplying Adidas with manpower. PRIME was
being used, they further claimed, to conceal the actual employment
relationship between them and Adidas.
They pointed out that for the years that they were employed, they
worked for Adidas, under the supervision and control of Adidas and
JCA personnel. They stressed that their work was related to and in
pursuit of Adidas' principal business activity (the marketing of its
products), thereby making them regular employees of the company.
This was their reason for demanding their regularization by Adidas.
Further, the complainants maintained that JCA was a mere alter ego of
Adidas and was being used to further muddle the employment
relationship between them and Adidas. JCA's actual role as a dummy
(together with PRIME) for Adidas, the complainants explained, was
evidenced by the fact that JCA and Adidas occupied the same office.
JCA took the place of WOSI as distributor of Adidas products.
Elaborating on their "muddled" employment status in relation with
Adidas, the complainants bewailed that JCA was erroneously identified
as "distributor" of Adidas products as no evidence showed that JCA
purchased the Adidas products they were selling.11 Under their
supposed Distribution Agreement, the "Distributor shall purchase the
Products only from Adidas or any other sources expressly designated
by Adidas and sell the Products in its own name and for its own account
x x x."12ChanRoblesVirtualawlibrary
The complainants asserted that the products they were selling at
various outlets remained the property and under the control of Adidas -
it was Adidas that provided the warehouse where the products were
stored, that leased the outlets from department stores, and that
provided regular training to them.13Also, the proceeds of the sales were
directly deposited to the bank account of Adidas. Moreover, their
salaries and other monetary benefits supposedly paid by PRIME were
charged to the account of Adidas, as indicated in their payslips.14 They
argued that if JCA purchased the products being sold and were already
its property, there was no point to still charge complainants' wages and
benefits to the Adidas' account.
These circumstances, complainants stressed, confirmed their position
that JCA and PRIME were only intermediaries of Adidas and were used
to conceal Adidas' identity as their real employer.
To substantiate their assertion that PRIME was just an intermediary of
Adidas, they submitted documentary proof that it was not even a
registered corporation, labor recruiter, or agency when it supposedly
entered into a contract with JCA; neither with the Securities and
Exchange Commission15 nor with the Department of Trade and
Industry.16 It was registered as a "job contractor/subcontractor" only on
May 20, 2002.17 They thus maintained that PRIME was just a labor-only
contractor at the time it claimed it had employed them for its supposed
undertaking with JCA.
In defense, Adidas argued that in 2002, it amended its Articles of
Incorporation18 to enable it to engage in the retail business
without the need to contract the services of distributors such as
JCA, following the approval by the Board of Investments of the
application of its mother company, Adidas Solomon AG, to operate as
a foreign retailer in the country. As a consequence, it no longer renewed
its Distribution Agreement with JCA when it expired on December 31,
2002.
Necessarily, it maintained, the Promotion Contract between JCA and
PRIME was also terminated, resulting in the complainants' dismissal.
However, for purposes of proper inventory, accounting and turnover of
products, it agreed with JCA for a hold-over period of three months
ending March 31, 2003.
Also, Adidas turned down the complainants' demand for regularization
as they were employees of PRIME. It claimed it was PRIME who
exercised control over their work; at most, the supervision it exercised
over the complainants was only to provide them guidelines in aid of
their marketing work. It added that neither could it satisfy their money
claims because they were legally dismissed when their contracts with
PRIME expired.
For its part, JCA prayed for the dismissal of the complaint as far as it
was concerned in view of what it claimed - its valid job contract with
PRIME, the complainants' employer. It averred that it was PRIME who
exercised the power to select, engage, and dismiss the complainants,
and who assumed the obligation to pay their wages. To bolster its
position, JCA presented quitclaim and release papers executed by
some employees in favor ofPRIME.19ChanRoblesVirtualawlibrary
JCA added that whatever liability it had with the complainants was
limited to satisfying their unpaid wages to the extent of the work
performed under its Promotion Contract with PRIME. However,
PRIME'S payment of its monetary obligations to the complainants
extinguished its liability towards them.
As its co-respondents did, PRIME denied liability, contending that it
hired the complainants as contractual employees for its project with
JCA to promote Adidas products. It maintained that their employment
was terminated when its contract with JCA expired and was not
renewed. Thus, the petitioner and the other complainants were not
illegally dismissed and were not therefore entitled to reinstatement and
back wages. On the issue of its legal personality as an independent
contractor, it submitted certificates of registration from the
DTI,20 DOLE,21 and SEC22 to establish that it had been in operation
earlier than May 20, 2002.
The Rulings on Compulsory Arbitration
In a decision23 dated February 23, 2004, Labor Arbiter (LA) Elias H.
Salinas dismissed the complaint for lack of merit, holding that PRIME
was the complainants' employer as it was PRIME who hired them to
work under its Promotions Contract with JCA. LA Salinas found the
complainants' dismissal valid in view of the termination and nonrenewal
of the contract.
LA Salinas denied the complainants' money claims, finding that PRIME
had shown that it paid their 13th month pay and service incentive leave
pay. However, for reasons of equity and humanitarian considerations,
LA Salinas awarded the petitioner and the complainants financial
assistance of one-half month's salary for every year of service.
The petitioner and 15 of the other complainants appealed. The 15
however moved to withdraw their appeal, which the National Labor
Relations Commission (NLRC) granted in its decision24 of January 23,
2008, leaving only the petitioner to pursue the case. Eventually, NLRC
denied the appeal. It also denied the petitioner's motion for
reconsideration, prompting her to seek recourse from the CA through a
petition for certiorari. She charged the NLRC with grave abuse of
discretion in rejecting her appeal and motion for reconsideration; as it
was, she lamented, contrary to law and jurisprudence.
The CA Decision
Before the CA, the petitioner reiterated her position in compulsory
arbitration that Adidas was her employer, not JCA or PRIME, since the
two entities were mere dummies/intermediaries or were labor-only
contractors of Adidas. She insisted that JCA and PRIME carried out -
under their respective contracts - Adidas' merchandising activities
using Adidas' premises and equipment with PRIME'S purported
employees working under the supervision and control of Adidas'
personnel.
The CA 10th Division denied the petition in its September 21,
201125 decision and affirmed the assailed NLRC rulings as they were
not rendered with grave abuse of discretion. It held that the rulings were
supported by evidence establishing PRIME to be a "legitimate job
contractor" as it possessed substantial capital to finance its promotions
undertaking with JCA. The evidence, the CA explained, consisted of
remittances to Philhealth, SSS and Pag-ibig26 which showed that
PRIME fulfilled its obligations toward its employees under the
government's welfare programs.
Applying the four-fold employer-employee relationship test,27 the CA
found PRIME to be the complainants' and the petitioner's employer as
it was PRIME which (1) hired the complainants;28 (2) paid their
wages;29 (3) dismissed them upon the expiration of the contract for
which they were hired; and (4) exercised control over them with respect
to the conduct of the work to be
performed.30ChanRoblesVirtualawlibrary
Consequently, the CA brushed aside the random certificates of
attendance in Adidas seminars31 of some of the complainants to prove
that Adidas was their employer, agreeing with NLRC finding that the
"certificates only establish the fact that complainants attended the
seminars for product knowledge, service quality, and retail
service."32ChanRoblesVirtualawlibrary
The petitioner moved for reconsideration of the CA decision, to no avail,
as the CA denied the motion in its February 20, 2012
resolution.33ChanRoblesVirtualawlibrary
The Petition
The petitioner now asks this Court to reverse the CA rulings, contending
that the appeals court seriously erred and gravely abused its discretion
when it held that she was an employee of PRIME, not of Adidas, and
was validly dismissed, contrary to law and applicable jurisprudence.
Before the Court, the petitioner reiterates the arguments she presented
to the CA, particularly the following factual narration:
chanRoblesvirtualLawlibrary
1. She applied at Adidas in its former address at Estrata
200, Emerald Avenue, Ortigas Center City. After the
interviews made by Ms. Cornelia Indon (Head
Concession, World of Sports Inc.) and Mr. Enrique
Victoria (Adidas Sales Manager), they ordered her to
 proceed to the office of PRIME and from there she was
given a letter of introduction ("intro letter") addressed to
the outlet where she was assigned.
2. She was assigned to different Adidas outlets and she,
together with her co-employees, were supervised by
Adidas managers and supervisors Cornelia Indon,
Sonny Niebres (Managing Director) and Philip Go
(President). It was not PRIME who supervised them;
neither was it JCA.
3. The sales in the outlets were deposited directly to the
bank account of Adidas and not to JCA or PRIME bank
accounts.
4. The products being sold and the tools she used in the
performance of her duty were owned by Adidas. Adidas
was also the one that paid the rents in the stores where
it has concessions.
5. She continued to work in different Adidas outlets for
more than seven years.
The petitioner submits that Adidas, JCA and PRIME failed to refute the
above narration or to present any evidence to the contrary. Citing Lakas
sa Industriya ng Kapatirang Haligi ng Alyansa-Pinagbuklod ng
Manggawang Promo ng Burlingame v. Burlingame Corporation,34 she
argues that as promo girl, her work is directly related to Adidas'
principal business or operations, which makes her a regular employee
of the company.
On the other hand, she points out, JCA and PRIME did not carry on an
independent business or undertook the performance of their service
contracts according to their own manner and methods, free from the
control and supervision of the principal Adidas. The two entities, she
insists, were mere labor-only contractors.
It is thus clear, the petitioner submits, that an employer-employee
relationship existed between her and Adidas. Accordingly, she prays
that: (1) she be declared a regular employee of Adidas; (2) Adidas be
ordered (a) to reinstate her with full back wages or to pay her back
wages and separation pay if reinstatement is no longer feasible; (b) to
grant her moral and exemplary damages, plus attorney's fees; and (3)
JCA and PRIME be declared jointly and solidarity liable with Adidas for
all her other money claims.
The Case for the Respondents
In its Comment35 filed on June 7, 2012, Adidas asks for the dismissal
of the petition, arguing principally that the petitioner failed to present
any cogent reason to reverse the CA factual conclusions upholding the
labor tribunals' ruling that the petitioner was an employee of PRIME and
was not illegally dismissed.
To support its position, Adidas submits that the arguments relied upon
by the petitioner are substantially identical with those raised in
her certiorari petition with the CA, which do not merit further
consideration as they had already been correctly passed upon by the
appellate court.
Adidas bewails the petitioner's repeated reference to her regular
employment with it and not with PRIME, "adducing in evidence only her
self-serving Salaysay which simply stated her baseless claims."36 On
the other hand, it was able to present proof, together with JCA and
PRIME, showing that PRIME was the petitioner's employer, it being,
like JCA, an independent and distinct business entity.
The respondents JCA and PRIME opted not to comment on the petition,
despite being required by the Court to do
so.37ChanRoblesVirtualawlibrary
The Court's Ruling
We find merit in the petition based on the evidence on record.
The evidence relied upon by LA Salinas, the NLRC, and the CA was
insufficient to support their conclusion that the petitioner was an
employee of PRIME. On the contrary, the evidence points to Adidas
as the petitioner's and the complainants' real employer.
PRIME is a labor-only contractor; JCA an agent/intermediary of
Adidas
One of the criteria the CA cited as a basis of its conclusion that PRIME
was a legitimate job contractor was its possession of "substantial
capital to finance its undertakings,"38 yet it was silent on what these
undertakings were. It merely said: "We reached this conclusion based
on records which showed PRIME has fulfilled its obligations towards its
employees as regards remittances to Philhealth, the SSS and Pag-
ibig."39 The CA conclusion, to our mind, fell short of establishing that
PRIME satisfied the substantial-capital requirement for legitimate job
contractors under the law and the rules.
Article 106 of the Labor Code provides that "There is 'labor-only'
contracting where the person supplying workers to an employer does
not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the
workers recruited and placed by such person are performing activities
which are directly related to the principal business of the employer. In
such cases, the person or intermediary shall be considered
merely an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were
directly employed by him. (emphasis supplied)
Sec. 5. Department Order No. 18-02, s. of 2002, implementing Articles
106 to 109 of the Labor Code, prohibits labor-only contracting and
defines it as "an arrangement where the contractor or sub-contractor
merely recruits, supplies or places workers to perform a job, work or
service for a principal, and any of the following is present: (i) The
contractor or subcontractor does not have substantial capital or
investment which relates to the job, work or service to be performed
and the workers recruited, supplied or placed by such contractor or sub-
contractor are performing activities which are directly related to the
principal business of the employer; or (ii) the contractor does not
exercise the right to control over the performance of the work of the
contractual employee, x x x 'substantial capital or investment' refers
to capital stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements, machineries and
work premises, actually and directly used by the contractor or
subcontractor in the performance or completion of the job, work
or service contracted out." (emphasis supplied)
Aside from PRIME'S remittances of employee contributions to
Philhealth, SSS, and Pag-ibig and the payment for the complainants'
and the petitioner's wages, we find no indication, except mostly
general statements from Adidas, PRIME and JCA, that PRIME
possessed substantial capital or investment to operate as a legitimate
job contractor or subcontractor.
According to Adidas, not only did PRIME have substantial capital or
investment to run its own business operations independent of its
clients, it also has sufficient capability to control and supervise its
employees. Yet it offered no proof to substantiate its claim,40 other than
its recognition of PRIME'S capability to fulfill its obligations towards its
employees.
The same thing is true with PRIME. It likewise offered no proof of how
or in what manner its purported substantial capital financed its
"promotional and inter-marketing business"41 with JCA, except to say
that in the pursuit of its business operations, "it has complied with all
the requirements of law anent the rights, privileges and benefits of its
employees."42ChanRoblesVirtualawlibrary
For its part, JCA relied principally on its promotional contract with
PRIME to avoid liability, saying that the terms of their service
agreement demonstrate the earmarks of an employer under the four-
fold employer-employee relationship test.43 It also presented no proof
of how or in what manner PRIME carried out its undertaking under the
contract; although like Adidas, it acknowledged PRIME'S payment of
the petitioners' and the complainants' wages, and remittances to
Philhealth, SSS, and Pag-ibig.
While the payment of wages and workers' benefits is one of the
determinants of an employer-employee relationship, we do not find it a
reliable basis in this case. In fact, a closer look at the payslips44 of
PRIME'S supposed employees reveals that the complainants' salaries
and benefits were under the account of Adidas,45 giving credence to
their claim that their compensation was charged to Adidas. If indeed
JCA and PRIME were an independent contractor and a subcontractor,
respectively, why would the name "ADIDAS" still appear on the payslips
of PRIME'S employees.
The answer lies in the fact that Adidas avoided being identified as the
complainants' direct employer so that it would not have to bear the
consequences of the complainants' and the petitioner's regularization.
Notably, the records show46 that these complainants and the petitioner
were engaged not only in 2002, but much earlier; some were even hired
in 1995, including the petitioner, who started selling Adidas products on
October 28, 1995. In fact, LA Salinas relied on the complainants'
several years of service of selling Adidas products in awarding financial
assistance to them.
Under these circumstances, we have reason to believe that PRIME, the
supposed JCA subcontractor, just assumed the act of paying the
complainants' wages and benefits on behalf of Adidas, indicating
thereby that it was a mere agent of Adidas or a labor-only
contractor.47ChanRoblesVirtualawlibrary
In the light of the complete absence of proof that PRIME applied its
"substantial capital or investment" in performing the promotional job it
contracted with JCA, we find credence in the petitioner's submission
that the products she was selling remained to be the property and under
the control of Adidas; that it was Adidas who owned the warehouse
where they were stored; that leased the sales outlets from department
stores; and that provided regular training to her and to the other
complainants. The record shows that this particular claim by the
petitioner had not been disputed by either Adidas or JCA.
Moreover, if in fact Adidas entered a distribution agreement with JCA,
we wonder why the products the petitioner and the other supposed
"contractual employees" were selling were retained and remained to be
under the control of Adidas, and also, why the proceeds of the sales
went into Adidas' bank account. The answer is because JCA itself is
not an independent contractor. It was merely an agent or intermediary
of Adidas, despite the distribution agreement between them which they
did not even honor since, as required under Section 2.2 of the
agreement,48 the distributor shall purchase the Adidas products and
sell them in its own name and for its own account.
Although Adidas claims that by virtue of the agreement, JCA did not
purchase but rather had in its custody and safekeeping different Adidas
products, for distribution to different sales outlets in the
country,49 nowhere in the record does it appear that the agreement had
been amended to allow such arrangement. Neither has it been shown
how or in what manner the distribution was to be done. It was not also
shown who managed and provided the storage places and the sales
outlets for the products.
Again, in the absence of evidence that JCA had the wherewithal to
undertake its distribution agreement with Adidas, except to enter into a
promotions contract with PRIME, we find merit in the petitioner's
contention that Adidas and JCA, at a time, held office in the same
address; and that Adidas provided the storage places and the outlets
for the distribution of its products, not PRIME or JCA. As the petitioner
points out, formerly it was WOSI and later JCA which acted as agent of
Adidas. The record bears out her observations.
The petitioner performed activities necessary to the principal
business of Adidas
Thus, the petitioner and the complainants (who withdrew from the case)
were performing activities that were necessary to market the products
that Adidas itself manufactured. They sold these products for several
years, starting in June 1995 until December 9, 2000. While Adidas
explains that it amended its articles of incorporation in October 2002 to
engage in retail, it cannot be denied that in 1995 it was already in the
retail business through its agents WOSI and JCA and labor-only
contractor PRIME. Thus, the petitioner had become an Adidas regular
employee a long time before she was supposedly made a "contractual
employee" of PRIME.
Adidas exercised control and supervision over the performance
of the petitioner's work
In the absence of evidence showing how or in what manner PRIME
carried out its promotion work under its contract with JCA and how it
provided the necessary requirements for such undertaking (such as the
maintenance of storage areas and engagement of sales outlets), we
likewise find merit in the petitioner's submission that it was Adidas who
exercised control and supervision over the petitioner's work
performance, through its Sales Manager Sonny Niebres, its President
Philip Go, and even Cornelia Indon, head of the WOSI concession.
In sum, we hold that PRIME failed to satisfy the four-fold employer-
employee relationship test,50 making it a labor-only contractor under the
law and the rules. Like JCA, it was merely an agent of Adidas,
notwithstanding the quitclaims of some of the complainants in its favor.
Adidas, therefore, is petitioner's real employer who shall be responsible
to her in the same manner and extent as if she were directly
employed by the company.51 In this light, we find the petitioner to
have been illegally dismissed, there being obviously no valid
cause to and absent due process in her dismissal.

Consequently, the petitioner is entitled under the law52 to
reinstatement, without loss of seniority rights and other privileges, and
with full back wages. Should reinstatement no longer be feasible, she
shall be entitled to full back wages and separation pay at one month's
pay for every year of service. However, her claim for other monetary
benefits is denied as she failed to refute LA Salinas' ruling that she had
been paid her 13th month pay and service incentive leave pay.
Further, we find the respondents to have shown bad faith in the
petitioner's dismissal as it resulted from the prohibited labor-only
contracting arrangement imposed on her since October 28, 1995. Thus,
the petitioner is also entitled to damages and to attorney's fees as she
was compelled to litigate to protect her rights. Under the circumstances,
we deem an award to the petitioner of P50,000.00 each in moral and
exemplary damages, plus ten percent attorney's fees reasonable, to be
paid jointly and solidarity by Adidas, PRIME, and JCA.
WHEREFORE, premises considered, the petition is GRANTED. The
assailed decision and resolution of the Court of Appeals are SET
ASIDE. The respondent Adidas Philippines, Inc., is ORDERED to
reinstate the petitioner Marites R. Cusap to her former position without
loss of seniority rights and other privileges, and to pay her back wages
from her illegal dismissal on December 9, 2002, up to her actual
reinstatement; and should reinstatement no longer be feasible, to pay
her back wages and separation pay at one month's pay for every year
of service.
Adidas Philippines, Inc., Promotion Resources & Inter-Marketing
Exponents, Inc., and JC Athletes Inc., are ORDERED to pay the
petitioner, jointly and solidarity, moral damages of P50,000.00,
exemplary damages of P50,000.00 and 10% of all the sums due under
this Decision as attorney's fees.
SO ORDERED.cralawlawlibrary
G.R. No. 103586 July 21, 1994
NATIONAL FEDERATION OF LABOR, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and FRANKLIN
BAKER COMPANY OF THE PHILIPPINES (DAVAO
PLANT), respondents.
Jose Espinas for petitioner.
Siguion-Reyna, Montecillo & Ongsiako for private respondent.
FELICIANO, J.:
Between 1 November 1983 and 1 November 1984, Wage Orders Nos. 3,
4, 5 and 6 were promulgated by the then President Ferdinand E. Marcos.
Wage Order No. 3 became effective as of 1 November 1983; Wage
Order No. 4, as of 1 May 1984; Wage Order No. 5, as of 16 June 1984;
and Wage Order No. 6 went into effect on 1 November 1984. All these
Wage Orders increased the statutory minimum wages of workers with
differing increases being specified for agricultural plantation and non-
agricultural workers.
Before the effectivity of Wage Order No. 3, the wage rates of regular
employees and of casual (or non-regular) employees of private
respondent Franklin Baker Company of the Philippines (Davao Plant)
("Company") were such that there was a positive differential between the
two (2) in the amount of P4.56. The effect of the implementation of the
successive Wage Orders upon the daily wage rates of these two (2)
groups of employees was summarized by petitioner in the following table:
Effectivity Wage of Wage of Gap
Date Regulars Casuals
Before W.O. No. 3 P22.56 P18.00 P4.56
After W.O. No. 3 1 Nov. 1983 22.56 20.00 2.56
After W.O. No. 4 1 May 1984 32.64 31.00 1.64
After W.O. No. 5 16 June 1984 34.00 34.00 0.001
Upon the effectivity of Wage Order No. 5, grievance meetings were held
by petitioner National Federation of Labor ("NFL") and private respondent
Company sometime in June 1984, addressing the impact which
implementation of the various Wage Orders had on the wage structure of
the Company.
On 21 June 1984, all the casual or non-regular employees of private
respondent Company (at least in its Davao Plant) were "regularized," or
converted into regular employees, pursuant to the request of petitioner
NFL.
On 1 July 1984, the effectivity date of the 1984 Collective Bargaining
Agreement between NFL and the Company, all regular employees of the
Company received an increase of P1.84 in their daily wage; the regular
daily wage of the regular employees thus became P35.84 as against
P34.00 per day for non-regular employees.
As a result of the implementation of Wage Order No. 6, casual
employees received an increase of their daily wage from P34.00 to
P36.00. At the same time, the Company unilaterally granted an across-
the-board increase of P2.00 in the daily rate of all regular employees,
thus increasing their daily wage from P35.84 to P37.84. Further, on 1
July 1985, the anniversary date of the increases under the CBA, all
regular employees who were members of the collective bargaining unit
got a raise of P1.76 in their basic daily wage, which pushed that daily
wage from P37.84 to P39.60, as against the non-regular's basic wage of
P36.00 per day. Finally, by November 1987, the lowest paid regular
employee had a basic daily rate of P64.64, or P10.64 more than the
statutory minimum wage paid to a non-regular employee.
The development of the wage scales of the Company's employees after
the effectivity date of Wage Order No. 5 is presented in the following
table:
Effectivity Wage of WageofGap
Date Regulars Casuals
After W.O. No. 5 16 June 1984 34.00 34.00 0.00
CBA Increase 1 July 1984 35.84 34.00 1.84
After W.O. No. 6 1 Nov. 1984 37.84 36.00 1.84
CBA Anniversary 1 July 1985 39.60 36.00 3.60
Increase
Meantime, while the above wage developments were unfolding, the
Company experienced a work output slow down. The Company directed
some 205 workers to explain the reduction in their work output. The
workers failed to comply and they were accordingly issued notices of
dismissal by the Company. As a response to its decreasing productivity
levels, the Company suspended operations on 16 August 1984.
Operations were resumed on 14 September 1984; the Company,
however, refused to take back the 205 dismissed employees. Petitioner
Union then went on strike alleging a lock-out on the part of the Company
and demanding rectification of the wage distortion. The case was certified
by the Secretary of Labor to the National Labor Relations Commission
("NLRC") for compulsory conciliation.
On 19 June 1985, the Union and the Company reached an agreement
with respect to the lock-out issue. The agreement, which was approved
by the NLRC En Banc, granted the 205 employees "financial assistance"
equivalent to thirty (30) days' separation pay. This left unresolved only
the wage distortion issue.
On 11 November 1987, the NLRC En Banc rendered a decision which in
effect found the existence of wage distortion and required the Company
to pay a P1.00 wage increase effective 1 May 1984:
In the computation submitted by the Union, there is a
need to restore the P2.56 gap between non-regulars or
"casuals" and "regular workers." This difference in the
basic wage of these workers was existing at the time of
the conclusion of the collective bargaining agreement and
before the implementation of Wage Orders No. 4 & 5. The
imprecise claim of respondent that there is P3.60 gap
between non-regular and regulars may not be sustained
because as aforestated, this amount represents
negotiated wage increase which should not be considered
covered and in compliance with the wage orders.
Considering, however, the present economic conditions
and the outlay involved in correcting the distortion in the
wages of respondent's workers, this Commission, in the
exercise of its arbitral powers, feels that an increase of
P1.00 on the present basic wage of regular workers
would significantly rectify or minimize the distortion in the
wage structure of respondent company caused by the
implementation of the various wage orders. Respondent
 is, therefore, required to implement the P1.00 wage
increase effective May 1, 1984 when Wage Order 4 took
effect. 2 (Emphasis supplied)
On motion for partial reconsideration filed by the Company, the above
quoted portion of the NLRC En Banc'sdecision was reconsidered and set
aside by the NLRC Fifth Division. 3 The Fifth Division of the NLRC in
effect found that while a wage distortion did exist commencing 16 June
1984, the distortion persisted only for a total of fifteen (15) days and
accordingly required private respondent company to pay "a wage
increase of P2.00 per day to all regular workers effective June 16, 1984
up to June 30, 1984 or a total of fifteen (15) days." 4 The rest of the
decision of 11 November 1987 was left untouched.
In its decision dated 16 December 1991, the NLRC (Fifth Division) said:
. . . At the time Wage Order No. 4 was implemented on
May 1, 1984, casual employees were increased to P34.00
per day, placing them on equal salary footing with the
regular employees who were likewise receiving P34.00
per day. But effective July 1, 1984 when the 1984 CBA
took effect, the regular employees of the company
admittedly received the basic wage of P35.84 or an
increase of P1.84 as against the daily wage of P34.00 of
the casual employees.
Thus, the apparent wage distortion did not last long but
only for 15 days, that is from June 16, 1984 when Wage
Order No. 5 took effect and lasted only up to June 30,
1984. From July 1, 1984, the regular employees received
an increase of P1.84 making their daily wage P35.84 as
against the wage of casual employees of P34.00 per day.
And as rightly pointed out respondent-movant, the
difference in the wage scale between the two (2) groups
of employees was maintained even after the
implementation of Wage Order No. 6 which took effect on
November 1, 1984. 5 (Emphasis supplied)
The bottom line issue presented to the Court is thus whether or not,
under the facts as summarized above, the NLRC (Fifth Division)
committed a grave abuse of discretion amounting to lack or excess of
jurisdiction, when it concluded that the wage distortion had ceased to
exist, after 1 July 1984.
The principal contention of petitioner NFL is that a wage distortion in the
wage structure of private respondent Company continued to
exist although a gap of P1.84 between the daily wage rate of regular
employees and that of casual employees had been re-established upon
the effectivity of the CBA increase on 1 July 1984. The original claim of
NFL was that the initial — prior to effectivity of Wage Order No. 3 —
differential of P4.56 in the wage rate of regular employees and that of
casual employees, should be re-created this time between the wage
rates of the newly "regularized" employees (i.e., the casual employees
regularized by the Company on 21 June 1984) and the "old" regular
employees (employees who, allegedly, had been regular employees for
at least three [3] years before the "regularization" of the casuals). 6 NFL
stresses that seniority is a valid basis of distinction between differing
groups of employees, under the Labor Code.
We note that neither the Wage Orders noted above, nor the
Implementing Rules promulgated by the Department of Labor and
Employment, set forth a clear and specific notion of "wage distortion."
What the Wage Orders and the Implementing Rules did was simply to
recognize that implementation of the Wage Orders could result in a
"distortion of the wage structure" of an employer, and to direct the
employer and the union to negotiate with each other to correct the
distortion. Thus, Section 6 of Wage Order No. 3, dated 7 November
1983, provided as follows:
Sec. 6. Where the application of the minimum wage rate
prescribed herein results in distortions of the wage
structure of an establishment, the employer and the union
shall negotiate to correct the distortions. Any
dispute arising from wage distortions shall be resolved
through the grievance procedure under their collective
bargaining agreement or through conciliation.
In case where there is no collective bargaining agreement
or recognized labor organization, the employer shall
endeavor to correct such distortions in consultation with
their workers. Any dispute shall be resolved
through conciliation by the appropriate Regional Office of
the Ministry of Labor and Employment or
through arbitration by the NLRC Arbitration Branch having
jurisdiction over the work-place. 7 (Emphasis supplied)
In its Resolution dated 11 November 1987, the NLRC En Banc provided
some elaboration of the notion of wage distortion, in the following terms:
 Wage distortion presupposes a classification of
positions and ranking of these positions at various levels.
One visualizes a hierarchy of positions with
corresponding ranks basically in terms of wages and
other emoluments. Where a significant change occurs at
the lowest level of positions in terms of basic wage
without a corresponding change in the other level in the
hierarchy of positions, negating as a result thereof the
distinction between one level of position from the next
higher level, and resulting in a disparity [should be
"parity"] between the lowest level [and] the next higher
level or rank, between new entrants and old hires, there
exists a wage distortion.
The various issuances on wages anticipated this
occurrence so that it had been commonly provided for in
these issuances that negotiations may be initiated for the
purposes of correcting the resulting
distortion. 8 (Emphases and brackets supplied)
A statutory definition of "wage distortion" is now found in Article 124 of
the Labor Code as amended by Republic Act. No. 6727 (dated 9 June
1989) which reads as follows:
Article 124. Standards/Criteria for Minimum Wage Fixing
—...
xxx xxx xxx
As used herein, a wage distortion shall mean a situation
where an increase in prescribed wage rates results in
the elimination or severe contraction of intentional
quantitative differences in wage or salary rates between
and among employee groups in an establishment as
to effectively obliterate the distinctions embodied in such
wage structure based on skills, length of service, or other
logical bases of differentiation. 9 (Emphasis supplied)
From the above quoted material, it will be seen that the concept of wage
distortion assumes an existing grouping or classification of
employees which establishes distinctions among such employees on
some relevant or legitimate basis. This classification is reflected in a
differing wage rate for each of the existing classes of employees. The
wage distortion anticipated in Wage Orders Nos. 3, 4, 5 and 6 was a
"distortion" (or "compression") which ensued from the impact of those
Wage Orders upon the different wage rates of the several classes of
employees. Thus distortion ensued where the result of implementation of
one or another of the several Wage Orders was the total elimination or
the severe reduction of the differential or gap existing between the wage
rates of the differing classes of employees. 10
It is important to note that the remedy contemplated in the Wage Orders,
and now in Article 124 of the Labor Code, for a wage distortion consisted
of negotiations between employer and employees for the rectification of
the distortion by re-adjusting the wage rates of the differing classes of
employees. As a practical matter, this ordinarily meant a wage increase
for one or more of the affected classes of employees so that some gap or
differential would be
re-established. There was no legal requirement that the historical gap
which existed before the implementation of the Wage Orders be restored
in precisely the same form or amount.
Applying the above concept to the case at bar, we note that there did
exist a two-fold classification of employees within the private respondent
Company: regular employees on the one hand and casual (or non-
regular) employees on the other. As can be seen from the figures
referred to earlier, the differential between these two (2) classes of
employees existing before Wage Order No. 3 was reduced to zero upon
the effectivity of Wage Order No. 5 on 16 June 1984. Obviously,
distortion — consisting of complete elimination of the wage rate
differential — had occurred. It is equally clear, however, that fifteen (15)
days later, on 1 July 1984, upon effectivity of the wage increase
stipulated in the collective bargaining agreement between the parties, a
gap or differential of P1.84 was re-created. This restored differential
persisted after the effectivity of Wage Order No. 6 on 1 November 1984.
By operation of the same CBA, by 1 July 1985, the wage differential had
grown to P3.60.
We believe and so hold that the re-establishment of a significant gap or
differential between regular employees and casual employees by
operation of the CBA was more than substantial compliance with the
requirements of the several Wage Orders (and of Article 124 of the Labor
Code). That this re-establishment of a significant differential was the
result of collective bargaining negotiations, rather than of a special
grievance procedure, is not a legal basis for ignoring it. The NLRC En
Banc was in serious error when it disregarded the differential of P3.60
which had been restored by 1 July 1985 upon the ground that such
differential "represent[ed] negotiated wage increase[s] which should not
be considered covered and in compliance with the Wage Orders." 11 The
Wage Orders referred to above had provided for the crediting of
increases in wages or allowances granted or paid by employers within a
specified time against the statutorily prescribed increases in minimum
wages. 12 A similar provision recognizing crediting of increases in daily
basic wage rates granted by employers pursuant to collective bargaining
agreements, is set out in Section 4(d) of R.A. No. 6727, a statute which
sought to "rationalize wage policy determination by establishing the
mechanism and proper standards therefor —." In Apex Mining Company,
Inc. v. National Labor Relations Commission, 13 the Supreme Court said:
It is important to note that the creditability provisions in
Wage Orders Nos. 5 and 6 (as well as the parallel
provisions in Wage Orders Nos. 2, 3 and 4) are grounded
in an important public policy. That public policy may be
seen to be the encouragement of employers to grant
wage and allowance increases to their employees higher
than the minimum rates of increases prescribed by statute
or administrative regulation.
To obliterate the creditability provisions in the Wage
Orders through interpretation or otherwise, and to compel
employers simply to add legislated increases in salaries
or allowances without regard to what is already being
paid, would be to penalize employers who grant their
workers more than the statutorily prescribed minimum
rates of increases. Clearly, this would be counter-
productive so far as securing the interests of labor is
concerned. The creditability provisions in the Wage
Orders prevent the penalizing of employers who are
industry leaders and who do not wait for statutorily
prescribed increases in salary or allowances and pay their
workers more than what the law or regulations
require. 14 (Emphases in the original)
We believe that the same public policy requires recognition and
validation, as it were, of wage increases given by employers either
unilaterally or as a result of collective bargaining negotiations, in the effort
to correct wage distortions.
We consider, still further, that the "regularization" of the casual or non-
regular employees on 21 June 1984 which was unilaterally effected by
the Company (albeit upon the request of petitioner NFL), in conjunction
with the coming into effect of the increases in daily wage stipulated in the
CBA, had the effect of rendering the whole problem of wage distortion
academic. The act of "regularization" eliminated the classification scheme
in respect of which the wage distortion had existed.
Petitioner NFL's principal contention that the wage distortion persisted
with respect to the "old" regular employees and the "newly regularized"
employees, is realistically a claim or demand that the classification of
"regular" employees be broken down into a sub-classification of "new
regulars" and "old regulars." A basic problem with this contention is that,
per the record of this case and during the period of time here relevant,
there was in fact no pre-existing sub-classification of regular employees
into "new regulars" and "old regulars" (i.e., on the basis of seniority or
longevity) in the Company. It follows that, as pointed out by the Solicitor-
General, 15 no wage distortion within the meaning of Wage Orders Nos. 3
through 6 (and of Article 124 of the Labor Code) continued beyond the
"regularization" of the casual employees on
21 June 1984. It may be — though here again the record is silent — that
the Company had some other sub-grouping of regular employees on the
basis, for instance, of the kind of functions discharged by employees
(e.g., rank and file; supervisory; middle management; senior
management; highly technical, etc.).
The basic point which needs to be stressed is that whether or not a new
or additional scheme of classification of employees for compensation
purposes should be established by the Company (and the legitimacy or
viability of the bases of distinction there embodied) is properly a matter
for management judgment and discretion, and ultimately, perhaps, a
subject matter for bargaining negotiations between employer and
employees. It is assuredly something that falls outside the concept of
"wage distortion." The Wage Orders and Article 124 as amended do not
require the establishment of new classifications or sub-classifications by
the employer. The NLRC is not authorized unilaterally to impose, directly
or indirectly, under the guise of rectifying a "wage distortion," upon an
employer a new scheme of classification of employees where none has
been established either by management decision or by collective
bargaining.
We conclude that petitioner NFL has not shown any grave abuse of
discretion amounting to lack of excess of jurisdiction on the part of the
NLRC in rendering its decision (through its Fifth Division) dated 16
December 1991.
WHEREFORE, the Petition for Certiorari is hereby DISMISSED for lack
of merit. No pronouncement as to costs.
SO ORDERED. Before us is a Petition for Review on Certiorari, challenging the
November 6, 1997 Decision[1] of the Court of Appeals in CA-GR
Bidin, Romero, Melo and Vitug, JJ., concur. SP No. 42525. The dispositive portion of the challenged Decision
reads:

G.R. No. 131247. January 25, 1999]

WHEREFORE, the petition is GRANTED. The assailed decision
of the Voluntary Arbitration Committee dated June 18, 1996 is
hereby REVERSED and SET ASIDE for having been issued with
grave abuse of discretion tantamount to lack of or excess of
PRUBANKERS ASSOCIATION, petitioner, vs. PRUDENTIAL
jurisdiction, and a new judgment is rendered finding that no wage
BANK & TRUST COMPANY, respondent.
distortion resulted from the petitioners separate and regional
implementation of Wage Order No. VII-03 at its Cebu, Mabolo
and P. del Rosario branches.

DECISION

The June 18, 1996 Decision of the Voluntary Arbitration

Committee,[2] which the Court of Appeals reversed and set aside,
PANGANIBAN, J.: disposed as follows:

Wage distortion presupposes an increase in the compensation of WHEREFORE, it is hereby ruled that the Banks separate and
the lower ranks in an office hierarchy without a corresponding regional implementation of Wage Order No. VII-03 at its Cebu,
raise for higher-tiered employees in the same region of the Mabolo and P. del Rosario branches created a wage distortion in
country, resulting in the elimination or the severe diminution of the the Bank nationwide which should be resolved in accordance with
distinction between the two groups. Such distortion does not arise Art. 124 of the Labor Code.[3]
when a wage order gives employees in one branch of a bank
higher compensation than that given to their counterparts in other
regions occupying the same pay scale, who are not covered by
said wage order. In short, the implementation of wage orders in
The Facts
one region but not in others does not in itself necessarily result in
wage distortion.

The facts of the case are summarized by the Court of Appeals

thus:
The Case
On November 18, 1993, the Regional Tripartite Wages and
Productivity Board of Region V issued Wage Order No. RB 05-03
which provided for a Cost of Living Allowance (COLA) to workers
in the private sector who ha[d] rendered service for at least three
(3) months before its effectivity, and for the same period
[t]hereafter, in the following categories: SEVENTEEN PESOS
AND FIFTY CENTAVOS (P17.50) in the cities of Naga and
Legaspi; FIFTEEN PESOS AND FIFTY CENTAVOS (P15.50) in
the municipalities of Tabaco, Daraga, Pili and the city of Iriga; and
TEN PESOS (P10.00) for all other areas in the Bicol Region.
Subsequently on November 23, 1993, the Regional Tripartite
Wages and Productivity Board of Region VII issued Wage Order
No. RB VII-03, which directed the integration of the COLA
mandated pursuant to Wage Order No. RO VII-02-A into the
basic pay of all workers. It also established an increase in the
minimum wage rates for all workers and employees in the private
sector as follows: by Ten Pesos (P10.00) in the cities of Cebu,
Mandaue and Lapulapu; Five Pesos (P5.00) in the municipalities
of Compostela, Liloan, Consolacion, Cordova, Talisay,
Minglanilla, Naga and the cities of Davao, Toledo, Dumaguete,
Bais, Canlaon, and Tagbilaran.
The petitioner then granted a COLA of P17.50 to its employees at
its Naga Branch, the only branch covered by Wage Order No. RB
5-03, and integrated the P150.00 per month COLA into the basic
pay of its rank-and-file employees at its Cebu, Mabolo and P. del
Rosario branches, the branches covered by Wage Order No. RB
VII-03.
On June 7, 1994, respondent Prubankers Association wrote the
petitioner requesting that the Labor Management Committee be
immediately convened to discuss and resolve the alleged wage
distortion created in the salary structure upon the implementation
of the said wage orders. Respondent Association then demanded
in the Labor Management Committee meetings that the petitioner
extend the application of the wage orders to its employees
outside Regions V and VII, claiming that the regional
implementation of the said orders created a wage distortion in the
wage rates of petitioners employees nationwide. As the grievance
could not be settled in the said meetings, the parties agreed to
submit the matter to voluntary arbitration. The Arbitration
Committee formed for that purpose was composed of the
following: public respondent Froilan M. Bacungan as Chairman,
with Attys. Domingo T. Anonuevo and Emerico O. de Guzman as
members. The issue presented before the Committee was
whether or not the banks separate and regional implementation of
Wage Order No. 5-03 at its Naga Branch and Wage Order No.
VII-03 at its Cebu, Mabolo and P. del Rosario branches, created
a wage distortion in the bank nationwide.
The Arbitration Committee on June 18, 1996 rendered the
questioned decision.[4]
Ruling of the Court of Appeals
In ruling that there was no wage distortion, the Court of Appeals
held that the variance in the salary rates of employees in different
regions of the country was justified by RA 6727. It noted that the
underlying considerations in issuing the wage orders are diverse,
based on the distinctive situations and needs existing in each
region. Hence, there is no basis to apply the salary increases
imposed by Wage Order No. VII-03 to employees outside of
Region VII. Furthermore, the Court of Appeals ruled that the
distinctions between each employee group in the region are
maintained, as all employees were granted an increase in
minimum wage rate.[5]
The Issues
In its Memorandum, petitioner raises the following issues:[6]
I The petition is devoid of merit.[7]
Whether or not the Court of Appeals departed from the usual
course of judicial procedure when it disregarded the factual
findings of the Voluntary Arbitration Committee as to the
existence of wage distortion.
II
Whether or not the Court of Appeals committed grave error in law
when it ruled that wage distortion exists only within a region and
not nationwide.
III
Whether or not the Court of Appeals erred in implying that the
term establishment as used in Article 125 of the Labor Code
refers to the regional branches of the bank and not to the bank as
a whole.
The main issue is whether or not a wage distortion resulted from
respondents implementation of the aforecited Wage Orders. As a
preliminary matter, we shall also take up the question of forum-
shopping.
The Courts Ruling
Preliminary Issue: Forum-Shopping
Respondent asks for the dismissal of the petition because
petitioner allegedly engaged in forum-shopping. It maintains that
petitioner failed to comply with Section 2 of Rule 42 of the Rules
of Court, which requires that parties must certify under oath that
they have not commenced any other action involving the same
issues in the Supreme Court, the Court of Appeals, or different
divisions thereof, or any other tribunal or agency; if there is such
other action or proceeding, they must state the status of the
same; and if they should thereafter learn that a similar action or
proceeding has been filed or is pending before the said courts,
they should promptly inform the aforesaid courts or any other
tribunal or agency within five days therefrom. Specifically,
petitioner accuses respondent of failing to inform this Court of the
pendency of NCMB-NCR-RVA-04-012-97 entitled In Re:
Voluntary Arbitration between Prudential Bank and Prubankers
Association (hereafter referred to as voluntary arbitration case),
an action involving issues allegedly similar to those raised in the
present controversy.
In its Reply, petitioner effectively admits that the voluntary
arbitration case was already pending when it filed the present
petition. However, it claims no violation of the rule against forum-
shopping, because there is no identity of causes of action and
issues between the two cases.
We sustain the respondent. The rule on forum-shopping was first
included in Section 17 of the Interim Rules and Guidelines issued
by this Court on January 11, 1983, which imposed a sanction in
this wise: A violation of the rule shall constitute contempt of court
and shall be a cause for the summary dismissal of both petitions,
without prejudice to the taking of appropriate action against the
counsel or party concerned. Thereafter, the Court restated the
rule in Revised Circular No. 28-91 and Administrative Circular No.
04-94. Ultimately, the rule was embodied in the 1997
amendments to the Rules of Court.
As explained by this Court in First Philippine International Bank v.
Court of Appeals,[8] forum-shopping exists where the elements of
litis pendentia are present, and where a final judgment in one
case will amount to res judicata in the other. Thus, there is forum-
shopping when, between an action pending before this Court and
another one, there exist: a) identity of parties, or at least such
parties as represent the same interests in both actions, b) identity
of rights asserted and relief prayed for, the relief being founded
on the same facts, and c) the identity of the two preceding
particulars is such that any judgement rendered in the other
action, will, regardless of which party is successful amount to res
judicata in the action under consideration; said requisites also
constitutive of the requisites for auter action pendant or lis
pendens.[9] Another case elucidates the consequence of forum-
shopping: [W]here a litigant sues the same party against whom
another action or actions for the alleged violation of the same
right and the enforcement of the same relief is/are still pending,
the defense of litis pendentia in one case is a bar to the others;
and, a final judgment in one would constitute res judicata and
thus would cause the dismissal of the rest.[10]
affected branches. A closer look would show that, indeed, the
requisites of forum-shopping are present.
First, there is identity of parties. Both cases are between the Bank
and the Association, acting on behalf of all its members. Second,
although the respective issues and reliefs prayed for in the two
cases are stated differently, both actions boil down to one single
issue: the validity of the Banks regionalization of its wage
structure based on RA 6727. Even if the voluntary arbitration
case calls for striking down the Banks regionalized hiring scheme
while the instant petition calls for the correction of the alleged
wage distortion caused by the regional implementation of Wage
Order No. VII-03, the ultimate relief prayed for in both cases is the
maintenance of the Banks national wage structure. Hence, the
final disposition of one would constitute res judicata in the other.
Thus, forum-shopping is deemed to exist and, on this basis, the
summary dismissal of both actions is indeed warranted.
Nonetheless, we deem it appropriate to pass upon the main issue
on its merit in view of its importance.
Main Issue: Wage Distortion

The statutory definition of wage distortion is found in Article 124

of the Labor Code, as amended by Republic Act No. 6727, which
The voluntary arbitration case involved the issue of whether the reads:
adoption by the Bank of regionalized hiring rates was valid and
binding.

Article 124. Standards/Criteria for Minimum Wage Fixing - xxx

On the other hand, the issue now on hand revolves around the
existence of a wage distortion arising from the Banks separate
and regional implementation of the two Wage Orders in the
As used herein, a wage distortion shall mean a situation where an
increase in prescribed wage results in the elimination or severe
contraction of intentional quantitative differences in wage or
salary rates between and among employee groups in an
establishment as to effectively obliterate the distinctions
embodied in such wage structure based on skills, length of
service, or other logical bases of differentiation.
Elaborating on this statutory definition, this Court ruled: Wage
distortion presupposes a classification of positions and ranking of
these positions at various levels. One visualizes a hierarchy of
positions with corresponding ranks basically in terms of wages
and other emoluments. Where a significant change occurs at the
lowest level of positions in terms of basic wage without a
corresponding change in the other level in the hierarchy of
positions, negating as a result thereof the distinction between one
level of position from the next higher level, and resulting in a
parity between the lowest level and the next higher level or rank,
between new entrants and old hires, there exists a wage
distortion. xxx. The concept of wage distortion assumes an
existing grouping or classification of employees which establishes
distinctions among such employees on some relevant or
legitimate basis. This classification is reflected in a differing wage
rate for each of the existing classes of employees[11]
Wage distortion involves four elements:
1. An existing hierarchy of positions with corresponding salary
rates
2. A significant change in the salary rate of a lower pay class
without a concomitant increase in the salary rate of a higher one
3. The elimination of the distinction between the two levels
4. The existence of the distortion in the same region of the
country.
In the present case, it is clear that no wage distortion resulted
when respondent implemented the subject Wage Orders in the
covered branches. In the said branches, there was an increase in
the salary rates of all pay classes. Furthermore, the hierarchy of
positions based on skills, length of service and other logical
bases of differentiation was preserved. In other words, the
quantitative difference in compensation between different pay
classes remained the same in all branches in the affected region.
Put differently, the distinction between Pay Class 1 and Pay
Class 2, for example, was not eliminated as a result of the
implementation of the two Wage Orders in the said region.
Hence, it cannot be said that there was a wage distortion.
Petitioner argues that a wage distortion exists because the
implementation of the two Wage Orders has resulted in the
discrepancy in the compensation of employees of similar pay
classification in different regions. Hence, petitioner maintains that,
as a result of the two Wage Orders, the employees in the affected
regions have higher compensation than their counterparts of the
same level in other regions. Several tables are presented by
petitioner to illustrate that the employees in the regions covered
by the Wage Orders are receiving more than their counterparts in
the same pay scale in other regions.
The Court is not persuaded. A wage parity between employees in
different rungs is not at issue here, but a wage disparity between
employees in the same rung but located in different regions of the
country.
Contrary to petitioners postulation, a disparity in wages between existing regional disparities in the cost of living and other socio-
employees holding similar positions but in different regions does economic factors and the national economic and social
not constitute wage distortion as contemplated by law. As development plans.
previously enunciated, it is the hierarchy of positions and the
disparity of their corresponding wages and other emoluments that
are sought to be preserved by the concept of wage distortion. Put
differently, a wage distortion arises when a wage order RA 6727 also amended Article 124 of the Labor Code, thus:
engenders wage parity between employees in different rungs of
the organizational ladder of the same establishment. It bears
emphasis that wage distortion involves a parity in the salary rates
of different pay classes which, as a result, eliminates the
distinction between the different ranks in the same region. Art. 124. Standards/Criteria for Minimum Wage Fixing. - The
regional minimum wages to be established by the Regional Board
shall be as nearly adequate as is economically feasible to
maintain the minimum standards of living necessary for the
health, efficiency and general well-being of the employees within
Different Regional Wages Mandated by RA 6727 the frame work of the national economic and social development
program. In the determination of such regional minimum wages,
the Regional Board shall, among other relevant factors, consider
the following:
Petitioners claim of wage distortion must also be denied for one
other reason. The difference in wages between employees in the
same pay scale in different regions is not the mischief sought to
be banished by the law. In fact, Republic Act No. 6727 (the Wage (a) The demand for living wages;
Rationalization Act), recognizes existing regional disparities in the
cost of living. Section 2 of said law provides:

(b) Wage adjustment vis-a-vis the consumer price index;

SEC 2. It is hereby declared the policy of the State to rationalize
the fixing of minimum wages and to promote productivity-
improvement and gain-sharing measures to ensure a decent
standard of living for the workers and their families; to guarantee (c) The cost of living and changes or increases therein;
the rights of labor to its just share in the fruits of production; to
enhance employment generation in the countryside through
industry dispersal; and to allow business and industry reasonable
returns on investment, expansion and growth. (d) The needs of workers and their families;

The State shall promote collective bargaining as the primary (e) The need to induce industries to invest in the countryside;
mode of settling wages and other terms and conditions of
employment; and whenever necessary, the minimum wage rates
shall be adjusted in a fair and equitable manner, considering
(f) Improvements in standards of living;
(g) The prevailing wage levels;
(h) Fair return of the capital invested and capacity to pay of
employers;
(I) Effects on employment generation and family income; and
(j) The equitable distribution of income and wealth along the
imperatives of social and economic development.
From the above-quoted rationale of the law, as well as the criteria
enumerated, a disparity in wages between employees with similar
positions in different regions is necessarily expected. In insisting
that the employees of the same pay class in different regions
should receive the same compensation, petitioner has apparently
misunderstood both the meaning of wage distortion and the intent
of the law to regionalize wage rates.
It must be understood that varying in each region of the country
are controlling factors such as the cost of living; supply and
demand of basic goods, services and necessities; and the
purchasing power of the peso. Other considerations underscore
the necessity of the law. Wages in some areas may be increased
in order to prevent migration to the National Capital Region and,
hence, to decongest the metropolis. Therefore, what the
petitioner herein bewails is precisely what the law provides in
order to achieve its purpose.
Petitioner claims that it does not insist that the Regional Wage
Boards created pursuant to RA 6727 do not have the authority to
issue wage orders based on the distinctive situations and needs
existing in each region. So also, xxx it does not insist that the
[B]ank should not implement regional wage orders. Neither does
it seek to penalize the Bank for following Wage Order VII-03. xxx
What it simply argues is that it is wrong for the Bank to
peremptorily abandon a national wage structure and replace the
same with a regionalized structure in violation of the principle of
equal pay for equal work. And, it is wrong to say that its act of
abandoning its national wage structure is mandated by law.
As already discussed above, we cannot sustain this argument.
Petitioner contradicts itself in not objecting, on the one hand, to
the right of the regional wage boards to impose a regionalized
wage scheme; while insisting, on the other hand, on a national
wage structure for the whole Bank. To reiterate, a uniform
national wage structure is antithetical to the purpose of RA 6727.
The objective of the law also explains the wage disparity in the
example cited by petitioner: Armae Librero, though only in Pay
Class 4 in Mabolo, was, as a result of the Wage Order, receiving
more than Bella Cristobal, who was already in Pay Class 5 in
Subic.[12] RA 6727 recognizes that there are different needs for
the different situations in different regions of the country. The fact
that a person is receiving more in one region does not necessarily
mean that he or she is better off than a person receiving less in
another region. We must consider, among others, such factors as
cost of living, fulfillment of national economic goals, and standard
of living. In any event, this Court, in its decisions, merely enforces
the law. It has no power to pass upon its wisdom or propriety.
Equal Pay for Equal Work
Petitioner also avers that the implementation of the Wage Order
in only one region violates the equal-pay-for-equal-work principle.
This is not correct. At the risk of being repetitive, we stress that
RA 6727 mandates that wages in every region must be set by the
particular wage board of that region, based on the prevailing
situation therein. Necessarily, the wages in different regions will
not be uniform. Thus, under RA 6727, the minimum wage in
Region 1 may be different from that in Region 13, because the
socioeconomic conditions in the two regions are different.
Meaning of Establishment
Petitioner further contends that the Court of Appeals erred in
interpreting the meaning of establishment in relation to wage
distortion. It quotes the RA 6727 Implementing Rules, specifically
Section 13 thereof which speaks of workers working in branches
or agencies of establishments in or outside the National Capital
Region. Petitioner infers from this that the regional offices of the
Bank do not themselves constitute, but are simply branches of,
the establishment which is the whole bank. In effect, petitioner
argues that wage distortion covers the pay scales even of
employees in different regions, and not only those of employees
in the same region or branch. We disagree.
Section 13 provides that the minimum wage rates of workers
working in branches or agencies of establishments in or outside
the National Capital Region shall be those applicable in the place
where they are sanctioned. The last part of the sentence was
omitted by petitioner in its argument. Given the entire phrase, it is
clear that the statutory provision does not support petitioners view
that establishment includes all branches and offices in different
regions.
Further negating petitioners theory is NWPC Guideline No. 1 (S.
1992) entitled Revised Guidelines on Exemption From
Compliance With the Prescribed Wage/Cost of Living Allowance
Increases Granted by the Regional Tripartite Wages and
Productivity Board, which states that establishment refers to an
economic unit which engages in one or predominantly one kind of
economic activity with a single fixed location.
Management Practice
Petitioner also insists that the Bank has adopted a uniform wage
policy, which has attained the status of an established
management practice; thus, it is estopped from implementing a
wage order for a specific region only. We are not persuaded. Said
nationwide uniform wage policy of the Bank had been adopted
prior to the enactment of RA 6727. After the passage of said law,
the Bank was mandated to regionalize its wage structure.
Although the Bank implemented Wage Order Nos. NCR-01 and
NCR-02 nationwide instead of regionally even after the effectivity
of RA 6727, the Bank at the time was still uncertain about how to
follow the new law. In any event, that single instance cannot be
constitutive of management practice.
WHEREFORE, the petition is DENIED and the assailed Decision
is AFFIRMED. Costs against petitioner.
SO ORDERED.
Romero, Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
G.R. No. 195466 July 2, 2014
ARIEL L. DAVID, doing business under the name and style
"YIELS HOG DEALER," Petitioner,
vs.
JOHN G. MACASIO, Respondent.
DECISION
BRION, J.:
We resolve in this petition for review on certiorari1 the challenge
to the November 22, 2010 decision2 and the January 31, 2011
resolution3 of the Court of Appeals (CA) in CA-G.R. SP No.
116003. The CA decision annulled and set aside the May 26,
2010 decision4 of the National Labor Relations Commission
(NLRC)5 which, in turn, affirmed the April 30, 2009 Decision6 of
the Labor Arbiter (LA). The LA's decision dismissed respondent
John G. Macasio's monetary claims.
The Factual Antecedents
In January 2009, Macasio filed before the LA a complaint7 against
petitioner Ariel L. David, doing business under the name and style
"Yiels Hog Dealer," for non-payment of overtime pay, holiday pay
and 13th month pay. He also claimed payment for moral and
exemplary damages and attorney’s fees. Macasio also claimed
payment for service incentive leave (SIL).8
Macasio alleged9 before the LA that he had been working as a
butcher for David since January 6, 1995. Macasio claimed that
David exercised effective control and supervision over his work,
pointing out that David: (1) set the work day, reporting time and
hogs to be chopped, as well as the manner by which he was to
perform his work; (2) daily paid his salary of ₱700.00, which was
increased from ₱600.00 in 2007, ₱500.00 in 2006 and ₱400.00 in
2005; and (3) approved and disapproved his leaves. Macasio
added that David owned the hogs delivered for chopping, as well
as the work tools and implements; the latter also rented the
workplace. Macasio further claimed that David employs about
twenty-five (25) butchers and delivery drivers.
In his defense,10 David claimed that he started his hog dealer
business in 2005 and that he only has ten employees. He alleged
that he hired Macasio as a butcher or chopper on "pakyaw" or
task basis who is, therefore, not entitled to overtime pay, holiday
pay and 13th month pay pursuant to the provisions of the
Implementing Rules and Regulations (IRR) of the Labor Code.
David pointed out that Macasio: (1) usually starts his work at
10:00 p.m. and ends at 2:00 a.m. of the following day or earlier,
depending on the volume of the delivered hogs; (2) received the
fixed amount of ₱700.00 per engagement, regardless of the
actual number of hours that he spent chopping the delivered
hogs; and (3) was not engaged to report for work and,
accordingly, did not receive any fee when no hogs were
delivered.
Macasio disputed David’s allegations.11 He argued that, first,
David did not start his business only in 2005. He pointed to the
Certificate of Employment12 that David issued in his favor which
placed the date of his employment, albeit erroneously, in January
2000. Second, he reported for work every day which the payroll
or time record could have easily proved had David submitted
them in evidence.
Refuting Macasio’s submissions,13 David claims that Macasio
was not his employee as he hired the latter on "pakyaw" or task
basis. He also claimed that he issued the Certificate of
Employment, upon Macasio’s request, only for overseas
employment purposes. He pointed to the "Pinagsamang
Sinumpaang Salaysay,"14 executed by Presbitero Solano and
Christopher (Antonio Macasio’s co-butchers), to corroborate his
claims.
In the April 30, 2009 decision,15 the LA dismissed Macasio’s
complaint for lack of merit. The LA gave credence to David’s
claim that he engaged Macasio on "pakyaw" or task basis. The
LA noted the following facts to support this finding: (1) Macasio
received the fixed amount of ₱700.00 for every work done,
regardless of the number of hours that he spent in completing the
task and of the volume or number of hogs that he had to chop per
engagement; (2) Macasio usually worked for only four hours,
beginning from 10:00 p.m. up to 2:00 a.m. of the following day;
and (3) the ₱700.00 fixed wage far exceeds the then prevailing
daily minimum wage of ₱382.00. The LA added that the nature of
David’s business as hog dealer supports this "pakyaw" or task
basis arrangement.
The LA concluded that as Macasio was engaged on "pakyaw" or
task basis, he is not entitled to overtime, holiday, SIL and 13th
month pay.
The NLRC’s Ruling
16
In its May 26, 2010 decision, the NLRC affirmed the LA
ruling.17 The NLRC observed that David did not require Macasio
to observe an eight hour work schedule to earn the fixed ₱700.00
wage; and that Macasio had been performing a non-time work,
pointing out that Macasio was paid a fixed amount for the
completion of the assigned task, irrespective of the time
consumed in its performance. Since Macasio was paid by result
and not in terms of the time that he spent in the workplace,
Macasio is not covered by the Labor Standards laws on overtime,
SIL and holiday pay, and 13th month pay under the Rules and
Regulations Implementing the 13th month pay law.18
Macasio moved for reconsideration19 but the NLRC denied his
motion in its August 11, 2010 resolution,20 prompting Macasio to
elevate his case to the CA via a petition for certiorari.21
The CA’s Ruling
In its November 22, 2010 decision,22 the CA partly granted
Macasio’s certiorari petition and reversed the NLRC’s ruling for
having been rendered with grave abuse of discretion.
While the CA agreed with the LAand the NLRC that Macasio was
a task basis employee, it nevertheless found Macasio entitled to
his monetary claims following the doctrine laid down in Serrano v.
Severino Santos Transit.23 The CA explained that as a task basis
employee, Macasio is excluded from the coverage of holiday, SIL
and 13th month pay only if he is likewise a "field personnel." As
defined by the Labor Code, a "field personnel" is one who
performs the work away from the office or place of work and
whose regular work hours cannot be determined with reasonable
certainty. In Macasio’s case, the elements that characterize a
"field personnel" are evidently lacking as he had been working as
a butcher at David’s "Yiels Hog Dealer" business in Sta. Mesa,
Manila under David’s supervision and control, and for a fixed
working schedule that starts at 10:00 p.m.
Accordingly, the CA awarded Macasio’s claim for holiday, SIL and
13th month pay for three years, with 10% attorney’s fees on the
total monetary award. The CA, however, denied Macasio’s claim
for moral and exemplary damages for lack of basis.
David filed the present petition after the CA denied his motion for
reconsideration24 in the CA’s January 31, 2011 resolution.25
The Petition
In this petition,26 David maintains that Macasio’s engagement
was on a "pakyaw" or task basis. Hence, the latter is excluded
from the coverage of holiday, SIL and 13th month pay. David
reiterates his submissions before the lower tribunals27 and adds
that he never had any control over the manner by which Macasio
performed his work and he simply looked on to the "end-result."
He also contends that he never compelled Macasio to report for
work and that under their arrangement, Macasio was at liberty to
choose whether to report for work or not as other butchers could
carry out his tasks. He points out that Solano and Antonio had, in
fact, attested to their (David and Macasio’s) established
"pakyawan" arrangement that rendered a written contract
unnecessary. In as much as Macasio is a task basis employee –
who is paid the fixed amount of ₱700.00 per engagement
regardless of the time consumed in the performance – David
argues that Macasio is not entitled to the benefits he claims. Also,
he posits that because he engaged Macasio on "pakyaw" or task
basis then no employer-employee relationship exists between
them.
Finally, David argues that factual findings of the LA, when
affirmed by the NLRC, attain finality especially when, as in this
case, they are supported by substantial evidence. Hence, David
posits that the CA erred in reversing the labor tribunals’ findings
and granting the prayed monetary claims.
The Case for the Respondent
Macasio counters that he was not a task basis employee or a
"field personnel" as David would have this Court believe.28 He
reiterates his arguments before the lower tribunals and adds that,
contrary to David’s position, the ₱700.00 fee that he was paid for
each day that he reported for work does not indicate a "pakyaw"
or task basis employment as this amount was paid daily,
regardless of the number or pieces of hogs that he had to chop.
Rather, it indicates a daily-wage method of payment and affirms
his regular employment status. He points out that David did not
allege or present any evidence as regards the quota or number of
hogs that he had to chop as basis for the "pakyaw" or task basis
payment; neither did David present the time record or payroll to
prove that he worked for less than eight hours each day.
Moreover, David did not present any contract to prove that his
employment was on task basis. As David failed to prove the
alleged task basis or "pakyawan" agreement, Macasio concludes
that he was David’s employee. Procedurally, Macasio points out
that David’s submissions in the present petition raise purely
factual issues that are not proper for a petition for review on
certiorari. These issues – whether he (Macasio) was paid by
result or on "pakyaw" basis; whether he was a "field personnel";
whether an employer-employee relationship existed between him
and David; and whether David exercised control and supervision
over his work – are all factual in nature and are, therefore,
proscribed in a Rule 45 petition. He argues that the CA’s factual
findings bind this Court, absent a showing that such findings are
not supported by the evidence or the CA’s judgment was based
on a misapprehension of facts. He adds that the issue of whether
an employer-employee relationship existed between him and
David had already been settled by the LA29 and the NLRC30 (as
well as by the CA per Macasio’s manifestation before this Court
dated November 15, 2012),31 in his favor, in the separate illegal
case that he filed against David.
The Issue
The issue revolves around the proper application and
interpretation of the labor law provisions on holiday, SIL and 13th
month pay to a worker engaged on "pakyaw" or task basis. In the
context of the Rule 65 petition before the CA, the issue is whether
the CA correctly found the NLRC in grave abuse of discretion in
ruling that Macasio is entitled to these labor standards benefits.
The Court’s Ruling
We partially grant the petition.
Preliminary considerations: the Montoya ruling and the factual-
issue-bar rule
In this Rule 45 petition for review on certiorari of the CA’s
decision rendered under a Rule 65 proceeding, this Court’s power
of review is limited to resolving matters pertaining to any
perceived legal errors that the CA may have committed in issuing
the assailed decision. This is in contrast with the review for
jurisdictional errors, which we undertake in an original certiorari
action. In reviewing the legal correctness of the CA decision, we
examine the CA decision based on how it determined the
presence or absence of grave abuse of discretion in the NLRC
decision before it and not on the basis of whether the NLRC
decision on the merits of the case was correct.32 In other words,
we have to be keenly aware that the CA undertook a Rule 65
review, not a review on appeal, of the NLRC decision challenged
before it.33
Moreover, the Court’s power in a Rule 45 petition limits us to a
review of questions of law raised against the assailed CA
decision.34
In this petition, David essentially asks the question – whether
Macasio is entitled to holiday, SIL and 13th month pay. This one
is a question of law. The determination of this question of law
however is intertwined with the largely factual issue of whether
Macasio falls within the rule on entitlement to these claims or
within the exception. In either case, the resolution of this factual
issue presupposes another factual matter, that is, the presence of
an employer-employee relationship between David and Macasio.
In insisting before this Court that Macasio was not his employee,
David argues that he engaged the latter on "pakyaw" or task
basis. Very noticeably, David confuses engagement on "pakyaw"
or task basis with the lack of employment relationship. Impliedly,
David asserts that their "pakyawan" or task basis arrangement
negates the existence of employment relationship.
At the outset, we reject this assertion of the petitioner.
Engagement on "pakyaw" or task basis does not characterize the
relationship that may exist between the parties, i.e., whether one
of employment or independent contractorship. Article 97(6) of the
Labor Code defines wages as "xxx the remuneration or earnings,
however designated, capable of being expressed in terms of
money, whether fixed or ascertained on a time, task, piece, or
commission basis, or other method of calculating the same, which
is payable by an employer to an employee under a written or
unwritten contract of employment for work done or to be done, or
for services rendered or to be rendered[.]"35 In relation to Article
97(6), Article 10136 of the Labor Code speaks of workers paid by
results or those whose pay is calculated in terms of the quantity
or quality of their work output which includes "pakyaw" work and
other non-time work.
More importantly, by implicitly arguing that his engagement of
Macasio on "pakyaw" or task basis negates employer-employee
relationship, David would want the Court to engage on a factual
appellate review of the entire case to determine the presence or
existence of that relationship. This approach however is not
authorized under a Rule 45 petition for review of the CA decision
rendered under a Rule 65 proceeding.
First, the LA and the NLRC denied Macasio’s claim not because
of the absence of an employer-employee but because of its
finding that since Macasio is paid on pakyaw or task basis, then
he is not entitled to SIL, holiday and 13th month pay. Second, we
consider it crucial, that in the separate illegal dismissal case
Macasio filed with the LA, the LA, the NLRC and the CA uniformly
found the existence of an employer-employee relationship.37
In other words, aside from being factual in nature, the existence
of an employer-employee relationship is in fact a non-issue in this
case. To reiterate, in deciding a Rule 45 petition for review of a
labor decision rendered by the CA under 65, the narrow scope of
inquiry is whether the CA correctly determined the presence or
absence of grave abuse of discretion on the part of the NLRC. In
concrete question form, "did the NLRC gravely abuse its
discretion in denying Macasio’s claims simply because he is paid
on a non-time basis?"
At any rate, even if we indulge the petitioner, we find his claim
that no employer-employee relationship exists baseless.
Employing the control test,38 we find that such a relationship exist
in the present case.
Even a factual review shows that Macasio is David’s employee
To determine the existence of an employer-employee
relationship, four elements generally need to be considered,
namely: (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the
power to control the employee’s conduct. These elements or
indicators comprise the so-called "four-fold" test of employment
relationship. Macasio’s relationship with David satisfies this test.
First, David engaged the services of Macasio, thus satisfying the
element of "selection and engagement of the employee." David
categorically confirmed this fact when, in his "Sinumpaang
Salaysay," he stated that "nag apply po siya sa akin at kinuha ko
siya na chopper[.]"39 Also, Solano and Antonio stated in their
"Pinagsamang Sinumpaang Salaysay"40 that "[k]ami po ay
nagtratrabaho sa Yiels xxx na pag-aari ni Ariel David bilang
butcher" and "kilalanamin si xxx Macasio na isa ring butcher xxx
ni xxx David at kasama namin siya sa aming trabaho."
Second, David paid Macasio’s wages.Both David and Macasio
categorically stated in their respective pleadings before the lower
tribunals and even before this Court that the former had been
paying the latter ₱700.00 each day after the latter had finished
the day’s task. Solano and Antonio also confirmed this fact of
wage payment in their "Pinagsamang Sinumpaang
Salaysay."41 This satisfies the element of "payment of wages."
Third, David had been setting the day and time when Macasio
should report for work. This power to determine the work
schedule obviously implies power of control. By having the power
to control Macasio’s work schedule, David could regulate
Macasio’s work and could even refuse to give him any
assignment, thereby effectively dismissing him.
And fourth, David had the right and power to control and
supervise Macasio’s work as to the means and methods of
performing it. In addition to setting the day and time when
Macasio should report for work, the established facts show that
David rents the place where Macasio had been performing his
tasks. Moreover, Macasio would leave the workplace only after
he had finished chopping all of the hog meats given to him for the
day’s task. Also, David would still engage Macasio’s services and
have him report for work even during the days when only few
hogs were delivered for butchering.
Under this overall setup, all those working for David, including
Macasio, could naturally be expected to observe certain rules and
requirements and David would necessarily exercise some degree
of control as the chopping of the hog meats would be subject to
his specifications. Also, since Macasio performed his tasks at
David’s workplace, David could easily exercise control and
supervision over the former. Accordingly, whether or not David
actually exercised this right or power to control is beside the point
as the law simply requires the existence of this power to
control 4243 or, as in this case, the existence of the right and
opportunity to control and supervise Macasio.44
In sum, the totality of the surrounding circumstances of the
present case sufficiently points to an employer-employee
relationship existing between David and Macasio.
Macasio is engaged on "pakyaw" or task basis
At this point, we note that all three tribunals – the LA, the NLRC
and the CA – found that Macasio was engaged or paid on
"pakyaw" or task basis. This factual finding binds the Court under
the rule that factual findings of labor tribunals when supported by
the established facts and in accord with the laws, especially when
affirmed by the CA, is binding on this Court.
A distinguishing characteristic of "pakyaw" or task basis
engagement, as opposed to straight-hour wage payment, is the
non-consideration of the time spent in working. In a task-basis
work, the emphasis is on the task itself, in the sense that payment
is reckoned in terms of completion of the work, not in terms of the
number of time spent in the completion of work.45 Once the work
or task is completed, the worker receives a fixed amount as
wage, without regard to the standard measurements of time
generally used in pay computation.
In Macasio’s case, the established facts show that he would
usually start his work at 10:00 p.m. Thereafter, regardless of the
total hours that he spent at the workplace or of the total number
of the hogs assigned to him for chopping, Macasio would receive
the fixed amount of ₱700.00 once he had completed his task.
Clearly, these circumstances show a "pakyaw" or task basis
engagement that all three tribunals uniformly found.
In sum, the existence of employment relationship between the
parties is determined by applying the "four-fold" test; engagement
on "pakyaw" or task basis does not determine the parties’
relationship as it is simply a method of pay computation.
Accordingly, Macasio is David’s employee, albeit engaged on
"pakyaw" or task basis.
As an employee of David paid on pakyaw or task basis, we now
go to the core issue of whether Macasio is entitled to holiday,
13th month, and SIL pay.
On the issue of Macasio’s entitlement to holiday, SIL and 13th
month pay
The LA dismissed Macasio’s claims pursuant to Article 94 of the
Labor Code in relation to Section 1, Rule IV of the IRR of the
Labor Code, and Article 95 of the Labor Code, as well as
Presidential Decree (PD) No. 851. The NLRC, on the other hand,
relied on Article 82 of the Labor Code and the Rules and
Regulations Implementing PD No. 851. Uniformly, these
provisions exempt workers paid on "pakyaw" or task basis from
the coverage of holiday, SIL and 13th month pay.
In reversing the labor tribunals’ rulings, the CA similarly relied on
these provisions, as well as on Section 1, Rule V of the IRR of the
Labor Code and the Court’s ruling in Serrano v. Severino Santos
Transit.46 These labor law provisions, when read together with the
Serrano ruling, exempt those engaged on "pakyaw" or task basis
only if they qualify as "field personnel."
In other words, what we have before us is largely a question of
law regarding the correct interpretation of these labor code
provisions and the implementing rules; although, to conclude that
the worker is exempted or covered depends on the facts and in
this sense, is a question of fact: first, whether Macasio is a "field
personnel"; and second, whether those engaged on "pakyaw" or
task basis, but who are not "field personnel," are exempted from
the coverage of holiday, SIL and 13th month pay.
To put our discussion within the perspective of a Rule 45 petition
for review of a CA decision rendered under Rule 65 and framed in
question form, the legal question is whether the CA correctly
ruled that it was grave abuse of discretion on the part of the
NLRC to deny Macasio’s monetary claims simply because he is
paid on a non-time basis without determining whether he is a field
personnel or not.
To resolve these issues, we need tore-visit the provisions
involved.
Provisions governing SIL and holiday pay
Article 82 of the Labor Code provides the exclusions from the
coverage of Title I, Book III of the Labor Code - provisions
governing working conditions and rest periods.
Art. 82. Coverage.— The provisions of [Title I] shall apply to
employees in all establishments and undertakings whether for
profit or not, but not to government employees, managerial
employees, field personnel, members of the family of the
employer who are dependent on him for support, domestic
helpers, persons in the personal service of another, and workers
who are paid by results as determined by the Secretary of Labor
in appropriate regulations.
xxxx
"Field personnel" shall refer to non-agricultural employees who
regularly perform their duties away from the principal place of
business or branch office of the employer and whose actual hours
of work in the field cannot be determined with reasonable
certainty. [emphases and underscores ours]
Among the Title I provisions are the provisions on holiday pay
(under Article 94 of the Labor Code) and SIL pay (under Article
95 of the Labor Code). Under Article 82,"field personnel" on one
hand and "workers who are paid by results" on the other hand,
are not covered by the Title I provisions. The wordings of
Article82 of the Labor Code additionally categorize workers "paid
by results" and "field personnel" as separate and distinct types of
employees who are exempted from the Title I provisions of the
Labor Code.
The pertinent portion of Article 94 of the Labor Code and its
corresponding provision in the IRR47 reads:
Art. 94. Right to holiday pay. (a) Every worker shall be paid his
regular daily wage during regular holidays, except in retail and
service establishments regularly employing less than (10)
workers[.] [emphasis ours]
xxxx
SECTION 1. Coverage. – This Rule shall apply to all employees
except:
xxxx
(e)Field personnel and other employees whose time and
performance is unsupervised by the employer including those
who are engaged on task or contract basis, purely commission
basis, or those who are paid a fixed amount for performing work
irrespective of the time consumed in the performance thereof.
[emphases ours]
On the other hand, Article 95 of the Labor Code and its
corresponding provision in the IRR48 pertinently provides:
Art. 95. Right to service incentive. (a) Every employee who has
rendered at least one year of service shall be entitled to a yearly
service incentive leave of five days with pay.
(b) This provision shall not apply to those who are already
enjoying the benefit herein provided, those enjoying vacation
leave with pay of at least five days and those employed in
establishments regularly employing less than ten employees or in
establishments exempted from granting this benefit by the
Secretary of Labor and Employment after considering the viability
or financial condition of such establishment. [emphases ours]
xxxx
Section 1. Coverage. – This rule shall apply to all employees
except:
xxxx
(e) Field personnel and other employees whose performance is
unsupervised by the employer including those who are engaged
on task or contract basis, purely commission basis, or those who
are paid a fixed amount for performing work irrespective of the
time consumed in the performance thereof. [emphasis ours]
Under these provisions, the general rule is that holiday and SIL
pay provisions cover all employees. To be excluded from their
coverage, an employee must be one of those that these
provisions expressly exempt, strictly in accordance with the
exemption. Under the IRR, exemption from the coverage of
holiday and SIL pay refer to "field personnel and other employees
whose time and performance is unsupervised by the employer
including those who are engaged on task or contract basis[.]"
Note that unlike Article 82 of the Labor Code, the IRR on holiday
and SIL pay do not exclude employees "engaged on task basis"
as a separate and distinct category from employees classified as
"field personnel." Rather, these employees are altogether merged
into one classification of exempted employees.
Because of this difference, it may be argued that the Labor Code
may be interpreted to mean that those who are engaged on task
basis, per se, are excluded from the SIL and holiday payment
since this is what the Labor Code provisions, in contrast with the
IRR, strongly suggest. The arguable interpretation of this rule
may be conceded to be within the discretion granted to the LA
and NLRC as the quasi-judicial bodies with expertise on labor
matters.
However, as early as 1987 in the case of Cebu Institute of
Technology v. Ople49 the phrase "those who are engaged on task
or contract basis" in the rule has already been interpreted to
mean as follows:
[the phrase] should however, be related with "field personnel"
applying the rule on ejusdem generis that general and unlimited
terms are restrained and limited by the particular terms that they
follow xxx Clearly, petitioner's teaching personnel cannot be
deemed field personnel which refers "to non-agricultural
employees who regularly perform their duties away from the
principal place of business or branch office of the employer and
whose actual hours of work in the field cannot be determined with
reasonable certainty. [Par. 3, Article 82, Labor Code of the
Philippines]. Petitioner's claim that private respondents are not
entitled to the service incentive leave benefit cannot therefore be
sustained.
In short, the payment of an employee on task or pakyaw basis
alone is insufficient to exclude one from the coverage of SIL and
holiday pay. They are exempted from the coverage of Title I
(including the holiday and SIL pay) only if they qualify as "field
personnel." The IRR therefore validly qualifies and limits the
general exclusion of "workers paid by results" found in Article 82
from the coverage of holiday and SIL pay. This is the only
reasonable interpretation since the determination of excluded
workers who are paid by results from the coverage of Title I is
"determined by the Secretary of Labor in appropriate regulations."
The Cebu Institute Technology ruling was reiterated in 2005 in
Auto Bus Transport Systems, Inc., v. Bautista:
A careful perusal of said provisions of law will result in the
conclusion that the grant of service incentive leave has been
delimited by the Implementing Rules and Regulations of the
Labor Code to apply only to those employees not explicitly
excluded by Section 1 of Rule V. According to the Implementing
Rules, Service Incentive Leave shall not apply to employees
classified as "field personnel." The phrase "other employees
whose performance is unsupervised by the employer" must not
be understood as a separate classification of employees to which
service incentive leave shall not be granted. Rather, it serves as
an amplification of the interpretation of the definition of field
personnel under the Labor Code as those "whose actual hours of
work in the field cannot be determined with reasonable certainty."
The same is true with respect to the phrase "those who are
engaged on task or contract basis, purely commission basis."
Said phrase should be related with "field personnel," applying the
rule on ejusdem generis that general and unlimited terms are
restrained and limited by the particular terms that they follow.
The Autobus ruling was in turn the basis of Serrano v. Santos
Transit which the CA cited in support of granting Macasio’s
petition.
In Serrano, the Court, applying the rule on ejusdem
generis50 declared that "employees engaged on task or contract
basis xxx are not automatically exempted from the grant of
service incentive leave, unless, they fall under the classification of
field personnel."51 The Court explained that the phrase "including
those who are engaged on task or contract basis, purely
commission basis" found in Section 1(d), Rule V of Book III of the
IRR should not be understood as a separate classification of
employees to which SIL shall not be granted. Rather, as with its
preceding phrase - "other employees whose performance is
unsupervised by the employer" - the phrase "including those who
are engaged on task or contract basis" serves to amplify the
interpretation of the Labor Code definition of "field personnel" as
those "whose actual hours of work in the field cannot be
determined with reasonable certainty."
In contrast and in clear departure from settled case law, the LA
and the NLRC still interpreted the Labor Code provisions and the
IRR as exempting an employee from the coverage of Title I of the
Labor Code based simply and solely on the mode of payment of
an employee. The NLRC’s utter disregard of this consistent
jurisprudential ruling is a clear act of grave abuse of
discretion.52 In other words, by dismissing Macasio’s complaint
without considering whether Macasio was a "field personnel" or
not, the NLRC proceeded based on a significantly incomplete
consideration of the case. This action clearly smacks of grave
abuse of discretion.
Entitlement to holiday pay
Evidently, the Serrano ruling speaks only of SIL pay. However, if
the LA and the NLRC had only taken counsel from Serrano and
earlier cases, they would have correctly reached a similar
conclusion regarding the payment of holiday pay since the rule
exempting "field personnel" from the grant of holiday pay is
identically worded with the rule exempting "field personnel" from
the grant of SIL pay. To be clear, the phrase "employees
engaged on task or contract basis "found in the IRR on both SIL
pay and holiday pay should be read together with the exemption
of "field personnel."
In short, in determining whether workers engaged on "pakyaw" or
task basis" is entitled to holiday and SIL pay, the presence (or
absence) of employer supervision as regards the worker’s time
and performance is the key: if the worker is simply engaged on
pakyaw or task basis, then the general rule is that he is entitled to
a holiday pay and SIL pay unless exempted from the exceptions
specifically provided under Article 94 (holiday pay) and Article95
(SIL pay) of the Labor Code. However, if the worker engaged on
pakyaw or task basis also falls within the meaning of "field
personnel" under the law, then he is not entitled to these
monetary benefits.
Macasio does not fall under the classification of "field personnel"
Based on the definition of field personnel under Article 82, we
agree with the CA that Macasio does not fall under the definition
of "field personnel." The CA’s finding in this regard is supported
by the established facts of this case: first, Macasio regularly
performed his duties at David’s principal place of business;
second, his actual hours of work could be determined with
reasonable certainty; and, third, David supervised his time and
performance of duties. Since Macasio cannot be considered a
"field personnel," then he is not exempted from the grant of
holiday, SIL pay even as he was engaged on "pakyaw" or task
basis.
Not being a "field personnel," we find the CA to be legally correct
when it reversed the NLRC’s ruling dismissing Macasio’s
complaint for holiday and SIL pay for having been rendered with
grave abuse of discretion.
Entitlement to 13th month pay
With respect to the payment of 13th month pay however, we find
that the CA legally erred in finding that the NLRC gravely abused
its discretion in denying this benefit to Macasio.1âwphi1
The governing law on 13th month pay is PD No. 851.53
As with holiday and SIL pay, 13th month pay benefits generally
cover all employees; an employee must be one of those
expressly enumerated to be exempted. Section 3 of the Rules
and Regulations Implementing P.D. No. 85154enumerates the
exemptions from the coverage of 13th month pay benefits. Under
Section 3(e), "employers of those who are paid on xxx task basis,
and those who are paid a fixed amount for performing a specific
work, irrespective of the time consumed in the performance
thereof"55 are exempted.
Note that unlike the IRR of the Labor Code on holiday and SIL
pay, Section 3(e) of the Rules and Regulations Implementing PD
No. 851 exempts employees "paid on task basis" without any
reference to "field personnel." This could only mean that insofar
as payment of the 13th month pay is concerned, the law did not
intend to qualify the exemption from its coverage with the
requirement that the task worker be a "field personnel" at the
same time.

WHEREFORE, in light of these considerations, we hereby

PARTIALLY GRANT the petition insofar as the payment of 13th
month pay to respondent is concerned. In all other aspects, we
AFFIRM the decision dated November 22, 2010 and the
resolution dated January 31, 2011 of the Court of Appeals in CA-
G.R. SP No. 116003.

SO ORDERED.